Evaluating the impact of the UK job retention scheme on mental health and well‐being using matched difference‐in‐differences

In March 2020, the UK government implemented the Coronavirus Job Retention Scheme, otherwise known as furlough, to minimise the impact of job losses. The UK furlough protected jobs during the COVID‐19 crisis, covering up to 80 per cent of a worker's monthly wage for hours not worked. We evaluate the causal effects of furlough on mental health, life satisfaction and loneliness, considering different labour market transitions in the pandemic. We employ a difference‐in‐differences estimator with propensity score matching, using data from the main stage and the COVID‐19 waves of Understanding Society, the UK Household Longitudinal Study. We show that furlough protected workers’ mental health and well‐being, compared with non‐furloughed workers and unemployment. We also find no detrimental effect on well‐being to being furloughed compared with continuous employment. The well‐being gains from furlough are particularly evident for those with pre‐existing health conditions. Overall, policies that mitigated negative labour market transitions during the pandemic had positive effects on the well‐being of the working population.