Furlough and Household Financial Distress during the COVID-19 Pandemic

47 Pages Posted: 1 Sep 2021

See all articles by Christoph Görtz

Christoph Görtz

University of Birmingham - Department of Economics

Danny McGowan

affiliation not provided to SSRN; University of Birmingham

Mallory Yeromonahos

Westminster Business School

Date Written: August 31, 2021

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.

Keywords: Furlough, Short-Time Work, Coronavirus Job Retention Scheme, COVID-19 Pandemic, Financial Distress, Automatic Stabilizers, Inequality

JEL Classification: D14, D31, E24, G51, H24

Suggested Citation

Görtz, Christoph and McGowan, Danny and Yeromonahos, Mallory, Furlough and Household Financial Distress during the COVID-19 Pandemic (August 31, 2021). Available at SSRN: https://ssrn.com/abstract=3914975 or http://dx.doi.org/10.2139/ssrn.3914975

Christoph Görtz

University of Birmingham - Department of Economics ( email )

United Kingdom

Danny McGowan (Contact Author)

affiliation not provided to SSRN

University of Birmingham ( email )

Edgbaston, Birmingham B15 2TT
United Kingdom

Mallory Yeromonahos

Westminster Business School ( email )

35 Marylebone Road
London NW1 5LS
United Kingdom

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