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Furlough and Household Financial Distress during the COVID‐19 Pandemic

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  • Christoph Görtz
  • Danny McGowan
  • Mallory Yeromonahos

Abstract

We study how being furloughed affects household financial distress during the COVID‐19 pandemic in the United Kingdom. Furlough increases the probability of late housing and bill payments by 30% and 19%, respectively. At the aggregate level, furlough increases the incidence of financial distress by 3.38 percentage points. To offset furlough‐induced income reductions, individuals significantly reduce consumption and spend savings. Relative to unemployment, the potential alternative in the absence of a furlough scheme, furlough reduces the incidence of financial distress by 95%. Estimates show an 80% government contribution to furloughed workers' wages minimizes the incidence of financial distress at the lowest cost to taxpayers.

Suggested Citation

  • Christoph Görtz & Danny McGowan & Mallory Yeromonahos, 2023. "Furlough and Household Financial Distress during the COVID‐19 Pandemic," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 85(6), pages 1157-1184, December.
    • Handle: RePEc:bla:obuest:v:85:y:2023:i:6:p:1157-1184
    DOI: 10.1111/obes.12556
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    Cited by:

    1. Pizzinelli, Carlo & Shibata, Ippei, 2023. "Has COVID-19 induced labor market mismatch? Evidence from the US and the UK," Labour Economics, Elsevier, vol. 81(C).

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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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