What happens in a US government shutdown?

US President-elect Donald Trump (L) and Tesla and SpaceX CEO Elon Musk watch a fight during UFC 309 at Madison Square Garden in New York, on November 16, 2024. [AFP]

The US government is hurtling towards a shutdown ahead of the Christmas holiday, after President-elect Donald Trump and Elon Musk scuppered a cross-party deal to keep federal agencies running.

What happens if Congress fails to pass a spending bill to keep the lights on past a Friday night deadline?

Who is impacted

A shutdown would likely affect hundreds of thousands of federal workers.

An estimated 875,000 workers could be furloughed, while 1.4 million would keep working as they are considered essential, said Shai Akabas, executive director of the Bipartisan Policy Center's economic policy program.

Typically, many employees will be told not to report to work, except for those providing key services like air traffic control and law enforcement. In the past, this has strained air transportation and other sectors.

The shutdown means essential staff will be working during the holidays without a paycheck, said the American Federation of Government Employees (AFGE), a major federal employee union.

Employees receive their pay retroactively when the shutdown is over, and a prolonged closure could strain their finances. But some contractors may not be guaranteed back pay.

AFGE National President Everett Kelley said a long shutdown would be "nothing short of a Christmas gift to America's adversaries and a lump of coal in the stockings of the American people."

Services affected

Beneficiaries of Social Security and Medicare will not be affected, as these programs are authorized by Congress via laws that do not require annual approval, the Brookings Institution has previously noted.

But services offered by Social Security benefit offices may be limited in a shutdown.

The National Park Service (NPS) would also be affected. During a 2013 government shutdown, the NPS turned away millions of visitors to hundreds of parks, national monuments, and other sites across the United States.

The longer an impasse, the greater its impact.

Length of shutdown

It is unclear how long a shutdown would last.

Bernard Yaros, lead economist at Oxford Economics, told AFP it could carry on for up to two weeks -- which is a typical pay period in the United States.

"Pressure to reopen the government would quickly build, as federal employees miss a paycheck and worry about missing another," he said.

There have been several shutdowns in which operations have been hit for more than one business day, including one lasting 35 days around December 2018 and January 2019 during the last Trump administration.

That was the most recent shutdown, and the longest in US history.

Economic impact

"Shutdowns have been shown to have a broader impact on the US economy," reducing growth by around 0.2 percentage points once private sector effects are taken in, said Thibault Denamiel, a fellow at the Center for Strategic and International Studies.

Markets are typically not hard-hit by a shutdown.

Observers could see Trump's chaotic intervention as a preview of his second-term governing style, noted David Wessel of Brookings Institution.

Denamiel noted markets experienced more anxiety when the Treasury had to deploy special measures to avoid a debt default, which would be "uncharted territory."

While this week's debate does not include such worries, "we may see the threat loom again during the second Trump administration," he warned.