Measuring unemployment: the claimant count gap

A rare good news story from the ONS, with the latest labour market statistics bucking the trend for gloomy economic data. In June to August, unemployment fell to 2.53 million and the total number of people in employment (29.59 million) reached a new high. Yet, while the number of people out of work was down by 50,000, the number of Jobseekers Allowance (JSA) claimants fell by just 12,000 [1] .  What accounts for this startling difference?

The claimant count measures the number of people in receipt of unemployment benefits, while the broader unemployment figure is based on the ILO[2]  definition of the number of people who are out of work but looking for a job. Unsurprisingly there is a gap between the two measures, with some people not qualifying for – or not choosing to claim – JSA.

The chart below sets out quarterly changes in the 12-month moving averages in the two measures, alongside a cumulative measure of the overall gap between the stock of unemployed and the claimant count. Each time the pink line sits outside the green block, the gap (and therefore the blue line) increases; where the pink line sits inside the green block, the gap shrinks.

Source:                 ONS, Labour market Statistics

We can see that, between 1971 and the mid-2000s, the claimant count tended to swing a little more wildly than the ILO figure. That is, during periods of rising unemployment (above the zero line), the number of people claiming out of work benefits increased by more than the total number of unemployed. Similarly, during periods of falling unemployment (below the zero line), the claimant count contracted more rapidly.

These trends reflect the fact that those who are unemployed during periods of economic growth are less likely to qualify for unemployment benefits [3] than are those who are unemployed during recessions: in the upswing, the out of work are more likely to be further removed from the labour market, while during the downturn a more representative cross-section of the population tends to be unemployed. Welfare reforms and tightened benefit conditions are likely to have accentuated this distinction in recent years. As such, the gap between the two counts grew ever wider from the mid-1990s onwards.

As with so much else, the trends have looked a little different during the most recent period though. Far from shrinking over the last few years of economic turmoil, we see that the gap between two measures (i.e. the blue line) grew still further between 2007 and 2012. Having moved in line with each other in 2008 and 2009, the claimant count fell in 2010 while overall unemployment flat-lined (reflecting the removal from the claimant count of those unemployed for more than six months perhaps). Compared with previous recessions, fewer have been able to turn the government for lasting financial support.

Why has the trend differed this time around? A large part of the explanation may well rest with the high level of youth unemployment experienced during the recession. Those aged under-18 are ineligible for JSA (as are those aged 65 and over), while students looking to work may be similarly excluded. Recent graduates might also have limited entitlement because of their short work histories, and they may not want to make a claim prior to embarking on their first job in any case. The disproportionate increase in unemployment among the young may therefore have helped stretch the gap between the ILO measure (in which they are captured) and the claimant count (in which they may not be).

If this is the case, then we might expect some convergence in the measures as youth unemployment falls. The latest figures, with their much more rapid reduction in unemployment than in the claimant count, suggest this might just be happening. This is particularly likely given that the overall fall in unemployment of 50,000 comprised falls of 62,000 among 18-24 year olds and 2,000 among those aged 65+, alongside an increase in unemployment of 14,000 among those aged 25-65.

Good news then. However, as we’ve discussed before and as John Philpott has pointed out elsewhere, headlines about falling unemployment tend to mask the growing trend of under-unemployment: a third of the new jobs created in the latest quarter were ‘mini-jobs’ providing fewer than 15 hours paid work per week. Thankfully, we’re heading in the right direction, but a true jobs recovery still looks some way off.

[1] The headline JSA reduction reported by the ONS is 4,000, but this relates to September 2012. More detailed tables in the release provide data for the same timeframe as the ILO measure.

[2] International Labour Office.

[3] Only those with sufficient Class 1 NI contributions qualify for contribution based JSA. Where previously such support was provided for 12 months, it is now only available for six. Those without sufficient contributions only receive the benefit if their household income is below a qualifying threshold. And after six months all unemployed people, regardless of their contributions, are subject to the income test.