Cost-of-Living Crisis, Travel Chaos and Supply Chain Disruptions – A Targeted Furlough Scheme to Ease the Pain

1. The research underlying this written evidence has been undertaken at the University of Birmingham.
2. Our analysis uses multivariate regression applied to annual firm-level data for the years 2004 to 2021 from the FAME database provided by Bureau van Dijk. The database is comprehensive, containing over 1 million observations of UK firms and reports their annual revenue, employment and other variables.
3. Our research provides novel insights:
- Instituting a Targeted Furlough Scheme (TFS) could mitigate recent adverse employment effects due to inflation, supply chain disruptions and worker shortages following the removal of COVID-19 restrictions.
- The TFS allows firms experiencing a 15%+ contraction in annual revenue to furlough workers. The government would provide an 80% monthly wage subsidy. This prevents unemployment and shields workers from financial distress that arises following redundancy.
- The TFS also allows firms experiencing large unexpected revenue falls to temporarily reduce staff to reduce costs and prevent bankruptcy. Furloughing workers prevents workers shortages once production returns to normal levels because firms can draw upon furloughed workers rather than try to hire new employees who may be scarce.
- The cost of implementing a TFS in the United Kingdom is relatively low: between £444 million and £528 million per annum.
- Countries like Germany and Switzerland used short-time furlough schemes outside the COVID-19 pandemic to dampen the adverse effects of recessions. The combination of limited costs to taxpayers and huge advantages to households and firms makes the TFS an appealing policy measure to help mitigating the adverse effects of the current crisis.