Furlough and Household Financial Distress during the COVID-19 Pandemic

Görtz, Christoph; McGowan, Danny; Yeromonahos, Mallory

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.

Citation

Görtz, C., McGowan, D., & Yeromonahos, M. (2021). Furlough and Household Financial Distress during the COVID-19 Pandemic

• Working Paper Type: Working Paper
• Publication Date: 2021
• Deposit Date: Jun 10, 2024
• Public URL: https://durham-repository.worktribe.com/output/2481040
• Publisher URL: https://www.econstor.eu/bitstream/10419/245466/1/cesifo1_wp9285.pdf