A recent study led by Selçuk Bedük, Departmental Lecturer in Comparative Social Policy at DSPI, has shown that UK households see their income slashed by 17% in the first year after job loss, compared with just 5-6% in Denmark, Finland, and Germany. Over five years, the cumulative income loss rises to around 35% in the UK, more than double the long-term penalty faced by families in Finland or Germany. This is despite UK households working harder than their European counterparts to fill the gap.
The research highlights how individuals and families in the UK are left to carry the burden of job loss more than other welfare states. It also demonstrates that household efforts alone cannot bridge the gap. For example, many UK families took on extra hours or new jobs when a household member was laid off, which compensated around 22% of the initial loss. In contrast, the same figure is negligible in Denmark and Finland (just 1-3%) and only half the amount in Germany (11%).
The study identified two factors which affect UK households:
- Weaker social insurance: UK unemployment benefits replace only about 20% of previous earnings for up to six months, compared with 60-80% for up to two years in other countries.
- Lower-quality re-employment: although most Britons find new work within a year, they typically return to jobs paying 40% less than before, nearly double the income drop seen elsewhere.
“While job loss is an everyday reality, our research shows the financial consequences differs greatly between countries. After a job loss, unemployment insurance is crucial in cushioning immediate income losses, while re-employment is most effective solution both in the short- and long-term. Yet the UK is lagging behind when it comes to quality of re-employment and generosity of benefits,” commented Dr Selçuk Bedük.
Significance of the research
In March 2025, the UK Government proposed plans for reforming the Unemployment Insurance scheme which would still provide only a third of the earnings of a full-time minimum wage worker. This is compared to replacement rates of 60-80% in other countries.
The researchers believe a strong unemployment insurance is key to achieving a more dynamic labour market where workers can move between jobs, contributing to productivity and growth, and therefore recommend strengthening unemployment insurance in the UK by improving benefit levels and their duration.
Read the research, Insurance against risk? Cost and compensation of job loss in different welfare states, in full in Socio-Economic Review
