The Effect of Furloughing Workers on Mental Wellbeing

24 Pages Posted: 20 Apr 2021

See all articles by William Cook

William Cook

Manchester Metropolitan University

Eleftherios Giovanis

Independent

Matthew Gobey

affiliation not provided to SSRN

Date Written: December 1, 2020

Abstract

In response to the COVID-19 pandemic, governments across the world have attempted to protect jobs by paying companies to retain employees (“furloughing”), even when there was no work for them to do. Using a difference-in-differences design on a nationally representative dataset, this study estimates the causal effect of the furloughing of workers in the UK on individuals’ mental wellbeing compared to those that remain in employment. The empirical analysis relies on data derived from the UK Household Longitudinal Study (UKHLS) in 2015-2019 and the UKHLS COVID-19 survey conducted in April 2020. We find that although both furloughed and laid-off individuals both saw large increases in their concern about their financial future, this did not translate into worse mental wellbeing outcomes for furloughed workers when compared to those who remained employed. In contrast, laid off workers suffered a decline in their mental wellbeing of a magnitude in line with previous studies of the effect of unemployment on mental wellbeing. These results suggest that the furlough scheme has had a substantial effect in avoiding a mental health crisis and that the benefits from the scheme extend well beyond simply supporting people’s income, by supporting their health and their general happiness too. More generally it illustrates how economic policy can affect mental wellbeing. At the same time it highlights that governments will have to take great care in withdrawing furloughing schemes so as to avoid widespread mental distress.

Keywords: mental health, wellbeing, furlough, unemployment, COVID

JEL Classification: J68, I10, I14

Suggested Citation

Cook, William and Giovanis, Eleftherios and Gobey, Matthew, The Effect of Furloughing Workers on Mental Wellbeing (December 1, 2020). Available at SSRN: https://ssrn.com/abstract=3830621 or http://dx.doi.org/10.2139/ssrn.3830621

William Cook (Contact Author)

Manchester Metropolitan University ( email )

Mabel Tylecote Building
Cavendish Street
Manchester, M15 6BG
United Kingdom

Eleftherios Giovanis

Independent

Matthew Gobey

affiliation not provided to SSRN

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