A new study led by the Department of Social Policy and Intervention (DSPI) at the University of Oxford has found that UK households see their income slashed by 17% in the first year after job loss - a far sharper hit than in Nordic or continental countries. This is despite UK households working harder than their European counterparts to fill the gap through taking on extra hours or multiple jobs.
The findings not only reflect poor labour market conditions in the UK but also underscore the need for stronger unemployment support, and at a more ambitious level than those set out in the Government's initial plan for Unemployment Insurance scheme announced in March 2025.
While job loss is an everyday reality, our research shows the financial fallout 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.
Dr Selçuk Bedük, Departmental Lecturer in Comparative Social Policy
The study, ' Insurance against risk? Cost and compensation of job loss in different welfare states ', published in Socio-Economic Review, shows that in the first year after job loss, UK families lose nearly a fifth (17%) of their income, compared with just 5-6% in Denmark, Finland, and Germany. This disparity is partly driven by UK's less generous unemployment support, both in amount and duration.
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.
The research also highlights how individuals and families in the UK are left to carry the burden of job loss more than other welfare states, and how household efforts alone cannot bridge the gap.
For example, many UK families responded to job loss by taking on extra hours or new jobs, offsetting 22% of the initial income loss. In contrast, the same figure is negligible in Denmark and Finland (just 1-3%) and only half the amount in Germany (11%).
Dr Selçuk Bedük, Departmental Lecturer in Comparative Social Policy at DSPI
Dr Selçuk Bedük
'While job loss is an everyday reality, our research shows the financial fallout 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.
'The proposed Unemployment Insurance, while a step forward, would still provide only a third of the earnings of a full-time minimum wage worker. In most countries, replacement rates reach 60-80%.
'A strong unemployment insurance is a crucial tool for reaching a more dynamic labour market where workers can move between jobs, contributing to productivity and growth. While a generous scheme might come with a budget cost, it can help with current government's priorities on growth.'
The study identified two key factors affecting households in the UK:
- 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.
The researchers recommend strengthening unemployment insurance to reduce the financial shock of job loss for British households. This could be done by improving benefit levels and their duration.
The research was carried out in collaboration with researchers from Humboldt University, University of Bristol, The Danish Centre for Social Science Research, Max Planck Institute for Demographic Research and University of Turku. Read the study in full in Socio-Economic Review .
