This paper draws on arguments related to behavioural additionality to consider how UK Covid-19 emergency public support measures – Furlough funding and loan guarantees – during the pandemic have influenced firms’ future investment intentions and employee well-being. Both provide an early indication of potential effects on future productivity.
The potential linkages and mechanisms are suggested using Logic Models. Survey data from the SME Finance Monitor for 2020 Q3 and 2020 Q4 and the Health and Well-being Survey 2021 provide data and the paper estimates probit models, instrumenting for different combinations of policy instruments (Furlough/loan, loan only, Furlough-only).
Overall, the paper finds widespread positive short-term impacts of the government support schemes on investment planning and smaller impacts on employee well-being. For example, firms which received a combination of Furlough and loans are 17.2 percentage points more likely to plan investments in capital equipment than firms with no pandemic support.
The same group of firms are 9.2 per cent less likely to report mental health absences and 9.9 per cent less likely to report sickness absences. While it is too early to draw firm conclusions the paper’s results suggest that public support during the pandemic is contributing to more positive investment intentions and well-being and potentially to sustaining or growing productivity which will be crucial in the recovery.