Human Capital, Intrinsic Motivation, and Productivity: Evidence from the Hidden Costs of Government Shutdowns

We study how intrinsic motivation affects human capital retention and productivity using millions of employee records for the U.S. federal government. Exploiting heterogenous exposure to government shutdowns as shocks to intrinsic motivation, we show that affected employees are 31% more likely to leave in the following year. Younger employees with better outside opportunities are more likely to quit, while more experienced employees with vested pensions are more likely to retire. Consistent with a loss of valuable employees, productivity at affected government bureaus decreases, leading to financial losses. Affected bureaus outsource activities to contractors, which increases labor costs.