From the TUC

Unemployment is still rising sharply, but what about the claimant count?

15 Jul 2009, by in Economics, Labour market

Today’s figures show unemployment at 2,381,000 (1,438,000 men and 923,000 women), up 281,000 on the quarter and 753,000 on the year. This is the largest quarterly increase on record, beating the sharp spike we saw between the end of 2008 and 2009 as well as all of the unemployment rises of the 1980s recession. Between this rolling quarter (March – May 09) and the last (Feb – April 09) 120,000 more people lost their jobs. This is a faster rate of increase than we saw between the last two rolling quarters.

But today I was asked by a journalist what my view was on these ‘better than expected’ figures. This was a reference to the claimant count data for June 09, which show a relatively small monthly rise between May and June 2009. Is this significant?

Our answer is that it may be (although not necessarily as a sign that that things aren’t as bad as the ILO measure suggests) but that it’s important to look at the historical relationship between claimant and ILO unemployment rates.

There has always been a gap between the two figures, which results from definitional differences – the claimant count measures the number of people entitled to unemployment benefits who are claiming them, while the ILO definition is a broader measure of people without a job who are actively looking for one. But certainly since 1997 the seperate measures have reflected similar trends – as this chart shows.

There is a large gap between the two levels. Analysis shows that the difference between the rates has been increasing since the late 1990s, which we think is partly a concequence of a growing economy (see below) and also a result of the tightening of conditions on JSA entitlement over the same period. Only those with sufficient Class 1 NI contributions qualify for contribution based JSA, which is now only provided for six months (until 1996 it was available for twelve). Those without sufficient contributions (who are more likely to be young workers, women workers or those who have been on self-employed contracts) will therefore only receive the benefit if their household income is below the qualifying threshold (which is low). And after six months all unemployed people, regardless of their contributions, are subject to the income test. In addition 16 and 17 year olds are not eligible for JSA. The ILO measure is therefore picking up all the unemployed people whose circumstances mean they can’t claim benefits, or who don’t see the point given their very limited entitlement.

Today there has been concern that the rate of increase in the claimant count seems to be less than the rate at which ILO unemployment is rising. To try to understand what’s happening we have looked at how the difference between claimant and ILO unemployment has changed over time – which can be seen here.

A pattern of increased convergence between the levels is what would be expected in a recession, as more workers with a history of NI contributions are made redundant. The proportion of unemployed workers who qualify for benefits increases, and in turn decreases during recovery, when a greater proportion of unemployed people will have been out of work for longer and will not qualify. The chart shows that this is what happened during the 1980s and the 1990s, and, apart from the March to April change, has been the case so far in this downturn. But between March and April 2009 the gap between the two levels increased, meaning that the ILO meaure rose faster than the claimant rate.

Why could this be? Benefit eligibility is tough, which will affect rates of increase. As we move through the recession and unemployed people who have claimed for six months find themselve ineligible for further JSA move off benefits, and young people and others who are ineligible for contributory JSA decide not to sign on, it may be that the ILO rate will increase at a faster speed. But this is only one possible reason – and at the moment no one is in a position to say what the main cause of the trend could be.

It is also important to get this change in perspective – to date we have only seen one month where the relationship between the claimant and ILO measures has deviated from what we would expect, so it is too soon to tell if this monthly change is of significance. Next month the ILO measure could slow, and patterns could revent to type – in previous recessions there were months that did not follow the broad trends. But if the rates cease to converge – and the difference between them widens significantly – further investigation will be needed, not least into how well our benefits system is serving those who find themselves out of work during this recession.

One Response to Unemployment is still rising sharply, but what about the claimant count?

  1. Unemployment still rising sharply – no green shoots in the labour market | ToUChstone blog: A public policy blog from the TUC
    Aug 12th 2009, 2:03 pm

    […] the claimant count rate and the ILO rate remains a matter for discussion. There has always been a gap between the two rates but the last two sets of figures we’ve had suggest that rather than moving closer together […]