Employers in private sector prepare for hit

Will be hurt by shutdown
Dee Darras, right, waits on customers at Maison Darras in the St. Paul skyway, on Friday July 1, 2011. Darras and her husband own the bistro, which relies heavily on state government workers as customers. Darras has to cut back the hours of one full-time employee because of the state government shutdown.
MPR Photo/Annie Baxter

State workers are taking the biggest employment hit from the government shutdown, but a number of businesses in the private sector are expecting trouble, too.

Those in the construction, social services, and leisure and hospitality sectors may feel a big bite, even if the net effect on the state's economy is moderate.

Faisal Yussef, who runs Kids Care Learning Center, a daycare center in St. Paul, is so worried about the government showdown that he has temporarily closed the center.

About 90 percent of the daycare's customers receive public assistance for child care, and those funds aren't flowing due to the government shutdown. Yussef said he can't afford to operate the daycare with fully paying customers alone and is closing it until the government is back up and running.

That means hard times for parents who rely on the business -- and for Yussef and his employees.

"All of them, including myself, will be jobless," Yussef said. "Some of them have mortgages to pay. Some have car (notes) to pay. Some have children to feed or rents to pay.

"It was very hard for all of us -- the business side of it, the employee side of it, and the parent side of it," he said. "We're all sad."

Businesses like Yussef's that provide social services may suffer some of the biggest employment hits outside of state government, said Tom Stinson, who until late last week was Minnesota's state economist. Stinson's professional title is a little ambiguous these days because he also was laid off due to the shutdown.

"I think you need to refer to me as University of Minnesota professor, not as state economist, since that doesn't exist anymore," he said.

In his capacity as U of M professor, Stinson is still doing some "back of the envelope" calculations about the economic hit from the shutdown.

He estimates layoffs at social services businesses like Yussef's could mean as much as $5 million each week in reduced spending power for those workers. In construction, where Stinson thinks 2,000 to 4,000 workers could be laid off, the effect could be as much as $2 million each week in lost spending power. The leisure and hospitality sector could see $5 million in lost spending per week.

Those losses combined with the lost wages of state workers could reach $25 million in lost spending power each week.

"Some of that will be made up by drawing down savings," Stinson said. "Some will be lost purchases and will have a little bit of an impact as well. The question is: how does this compare to the state's economy?"

Stinson said those wages still represent only a fraction of the overall wages produced by workers across all sectors. If a shutdown lasted four weeks, the lost wages would amount to about 8/100ths of 1 percent of total wages earned over the year.

"This is not something that's going to cause a recession in the Minnesota economy," he said. "It's going to produce a short-term drag on the economy."

That said, Stinson acknowledges it will be tough-going for some businesses and their workers during the shutdown.

Among the businesses bracing for a drop in sales is Maison Darras, a small French bistro in downtown St. Paul's skyway system.

Co-owner Dee Darras said many of her customers are state government workers. Without their patronage, Darras has had to scale back her workers' hours.

"The part-timer is not coming in, the full-timer is coming in less and (we're) just keeping our fingers crossed that this will be settled," she said.

Heather Horst, the full-time employee, hopes so too. Her husband's livelihood also has a connection to the state:

"His job is printing. It's contingent on a lot of contracts affected by the state," Horst said. "So they're not going to be getting payments on a lot of things. Their business is hurting, I'm losing hours. We are a month-to-month family in terms of paying bills,"

With six children living at home in their newly merged family, the couple is worried. Horst said there are few places where they can look to cut expenses.