The Effect of Furloughing Workers on Mental Wellbeing
24 Pages Posted: 20 Apr 2021
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: Suggested Citation