U.S. government shutdown begins, but what does it actually mean?

The U.S. government shut down much of its operations on Wednesday as deep partisan divisions prevented Congress and the White House from reaching a funding deal, setting off what could be a long, grueling standoff that could lead to the loss of thousands of federal jobs.

There was no clear path out of the impasse, while agencies warned that the 15th government shutdown since 1981 would halt the release of a closely watched September employment report, slow air travel, suspend scientific research, withhold pay from U.S. troops and lead to the furlough of 750,000 federal workers.

But what does a government shutdown mean? How could it end? And how much damage could it do?

What does the shutdown involve?

When Congress fails to pass funding legislation, many federal services are temporarily halted or disrupted. Federal employees classified as "non-excepted" are placed on unpaid furlough. 

Those in jobs which involve protecting life and property - such as active-duty military members and federal law enforcement officers - must continue to work for free until the shutdown ends.

Many government facilities, including national parks will be closed.

Workers in the fields of social security, Medicare and air traffic control – would continue, while mail delivery and post office operations will continue without interruption.

During the last government shutdown that lasted 35 days, from December 22, 2018, to January 25, 2019, during President Donald Trump's first term — about 800,000 government workers were sent home. Furloughed workers are guaranteed backpay when they return to work. 

The non-partisan Congressional Budget Office says if, as expected, 750,000 workers are furloughed this time, it will cost the government about $400 million per day.

However, the Trump administration has suggested that federal departments and agencies should consider firing employees. In a memo sent last week, the Office of Management and Budget said federal agencies should "use this opportunity to consider reduction in force."

The White House's office of management and budget (OMB) were at the forefront of the Trump administration's efforts earlier this year to shrink the federal workforce as part of a campaign led by Elon Musk's "department of government efficiency".

Earlier this week Trump said "a lot of good can come down from shutdowns" and said they could be used to "get rid of a lot of things we didn't want, and they'd be Democrat things".

Why is it happening?

The federal government's new fiscal year began on Wednesday, without an agreement on a short-term funding bill.

Democrats are demanding an extension of subsidies that limit the cost of health insurance under the Affordable Care Act but Republicans, who control both chambers of Congress, are refusing to negotiate. 

With the two parties polarized, shutdown threats have become a regular feature of recent congressional budget battles. Usually last-minute compromises are agreed but that hasn't worked this time.

How much damage could it do?

In addition to the human cost of furloughed wages - and potentially job losses - among the 3 million federal employees - there will be other consequences. 

Analysts warn that a long shutdown could slow growth and disrupt markets.

According to the Congressional Budget Office (CBO), the federal agency that provides budget and economic information to Congress, the 2018-19 shutdown reduced economic output by $11 billion.

The shutdown also means the temporary closure of the Bureau of Labor Statistics, delaying the release of the September jobs report which influences policymakers at the US Federal Reserve which sets interest rates.

A shutdown may cause stock market volatility, but historically they have only a brief impact on equity market returns.

It will not affect the government's ability to pay its debt to bondholders. 

However, the firing of federal workers will push up the unemployment rate and lead to a deterioration in the labor market.