The UK Universal Credit (UC) welfare reform simplified the benefits system whilst strongly incentivising a return to sustainable employment. Exploiting a staggered roll-out, we estimate the differential effect of entering unemployment under UC versus the former system on mental health. Groups with fewer insurance possibilities - single adults and lone parents – experience a mental health deterioration of 8.4-13.9% sd. For couples, UC partially or fully mitigates mental health consequences of unemployment. Exploring mechanisms, for single adults and lone parents, reduced benefit income and strict job search requirements dominate any positive welfare effects of the reduced administrative burden of claiming benefits.
First version, March 24, 2022
D61: Allocative Efficiency; Cost-Benefit Analysis
I10: Health, Education, and Welfare, General
I14: Health and Inequality
I38: Welfare and Poverty: Government Programs; Provision and Effects of Welfare Programs