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Furlough and Household Financial Distress during the Covid-19 Pandemic

Christoph Görtz (), Danny McGowan and Mallory Yeromonahos

No 9285, CESifo Working Paper Series from CESifo

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 (search for similar items in EconPapers)
JEL-codes: D14 D31 E24 G51 H24 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-isf, nep-mac and nep-ure
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