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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 furlough affects household financial distress during the COVID-19 pandemic. Furlough increases the probability of late housing and bill payments by 30% and 9%, respectively. The effects exist for individuals who rent their home, but not mortgagees who can mitigate financial distress by reducing expenditure during furlough by deferring mortgage payments though the Mortgage Holiday Scheme. Furloughed individuals significantly reduce expenditure and spend their savings to offset furlough-induced income reductions. This creates wealth inequality but lowers the probability a furloughed worker experiences financial distress after returning to work. 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, 2021. "Furlough and Household Financial Distress during the Covid-19 Pandemic," CESifo Working Paper Series 9285, CESifo.
    • Handle: RePEc:ces:ceswps:_9285
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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

    Keywords

    furlough; short-time work; Coronavirus job retention scheme; Covid-19 pandemic; financial distress; automatic stabilizers; inequality;
    All these keywords.

    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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