Throughout the financial crisis there’s been a puzzle gnawing at me, which seems critically important – yet has been barely mentioned. It’s glaringly obvious when looking at the BBC news reports after every release of the unemployment figures, the latest version of which is this (see also here):
I’m not talking about those aspects that the media & commentators have focused on: the very high unemployment total, or even how this figure itself is an underestimate of ‘underemployment’ (see here, here and here). Instead, I want to know: why do so few unemployed people claim unemployment benefits , compared to the last recession?
Clarifying these numbers
To quickly explain what these two numbers in the chart above mean:
- The ‘unemployment count’ in this case is taken from the Labour Force Survey, and categorises people as unemployed if they have been actively seeking work, AND are available to start work if a job is offered.
- The ‘claimant count’ is official data on the number of people claiming unemployment benefits (now called Jobseekers’ Allowance or ‘JSA’). So it’s about benefit claims rather than unemployment.
So the issue is that there are now more people available to start work and actively seeking work, relative to the numbers claiming unemployment benefits.
One problem with the figures above is that they are absolute numbers rather than rates. If we go direct to the National Statistics data (assembled from two tables), then we see that unemployment in 16-64 year olds was 10.0% in Jun-Aug 1992, compared to 8.3% in the same period in 2011 (via a low of 4.8% in 2004-5). In contrast, unemployment benefit claims among 16-64 year olds was 12.3% in 1992 - 2.3 percentage points higher than the unemployment level – while in 2011 it was 5.8% – 2.5 percentage points lower than unemployment per se.
Some answers, some questions…
Now, some differences between the unemployment rate and the claimant count rate are perfectly understandable. Nearly 300,000 students in full-time education are counted as ‘unemployed’ on the above definition, but it is likely that many of these do not sign on; there are likely to be short delays in becoming unemployed and claiming benefits; some unemployed people claim other benefits (and some non-unemployed people claim JSA, e.g. some sick and disabled people); and various other reasons besides.
But what could possibly explain the sharp change over time in the balance between unemployment and JSA claims? Two explanations seem most likely: either unemployed aren’t entitled to the benefit any more, or they are entitled but aren’t claiming it.
Entitlement: you can see in the chart above that the two lines start seriously diverging after 1996. This is when the old ‘Unemployment Benefit’ was replaced by JSA, which changed the eligibility of the benefit. [You can see a summary of the two types of eligibility to JSA on p8 of this report].
In the only recent comment on the divergent trends that I can find, Prof Steve Fothergill (whose work I regularly use) says:
“Quite a lot of people who are out of work find they don’t qualify for Job Seekers Allowance. It’s now means tested so if you have a partner in work you don’t get anything. It’s forcing individuals to be supported by other household members and households are pushed down closer to the poverty line.”
Take-up: however, restricting eligibility is not the whole answer. According to the official analysis [p144], the take-up of JSA has fallen sharply since the last recession:
[As these figures get updated you can find them here]
Now take-up rates are incredibly difficult to calculate – partly because benefits eligibility is so complex that it’s hard to figure this out from survey questions; partly because people are asked to give proof in real life that they aren’t asked in a survey; and partly because people are surprisingly bad at reporting if they’re claiming benefits (and which benefits they’re claiming) in surveys. So the Department for Work and Pensions sensibly says to be careful in using these figures.
Nevertheless, given the evidence above, it seems likely that there’s been a genuine, noticeable drop in JSA take-up even since 1997 – which might have followed an earlier drop 1992-1997, given that the gap between unemployment and the claimant count started before the take-up figures begin.
This raises FURTHER questions though, about why take-up has gone down. One possibility is due to stigma – something that I’m investigating in a project with Kate Bell and Declan Gaffney, so more on this in coming months. Another possibility is that people are claiming different benefits, which I might come back to in a future post. Or it might be because the incentive to claim unemployment benefits has gone down. Peter Kenway’s JRF report on unemployment benefit levels shows the decline in payment rates like this [p12]:
As I’ve previously written on the blog though, the low unemployment benefits are supplemented more by other benefits in the UK than in other countries – although still, the collective package is not generous in comparative terms.
A final thought
There’s an interesting discussion to be had about what this all means, and whether this is a sign that our social security system is failing in the midst of the financial crisis. But what seems particularly strange is how this isn’t a topic of discussion – a mystery on top of a mystery, to my mind…