Wednesday, 19 February 2014

February 2014 Labour Market Statistics Briefing

This morning, the Office for National Statistics published the Labour Market Statistics (LMS) release for February 2014.  This summarised Labour Force Survey (LFS) data for the final three months of 2013 and Jobseeker’s Allowance (JSA) claimant data for January 2014.  This release indicates further improvements in the headline labour market indicators.  The exception continues to be earnings growth, which remains weak and well below the rate of inflation, despite the Consumer Price Index measure of inflation falling to 1.9% in January, below the Bank of England’s target rate of 2% for the first time in four years. 

Additionally, the latest data suggests continuing issues of under-employment, with relatively high proportions of people stating that they are working temporarily or part-time because they cannot find permanent or full-time work.  Such concerns underpin the Bank of England’s revised Forward Guidance announced with the Inflation Report last week.

The employment rate and number employed increased compared to the previous quarter, whilst the unemployment rate fell compared to the previous quarter, to 7.2%.  There has been some misunderstanding of this in the press, with newspapers reporting an increase in unemployment when compared to the rate published in January’s LMS (7.1%).    The ONS recommend against comparing successive monthly LFS-based estimates due to the data overlap.  For example, the data published last month covered the period September to November, the data this month covers the period October to December.  In each of this periods, the unemployment rate fell compared to the previous non-overlapping quarter (e.g. June to August and July to September respectively).  On this basis, according to the latest release, the unemployment rate fell by 0.4 percentage points between the period July to September and October to December 2013.

The number and rate of unemployment-benefit claimants has fallen on the previous month.  The JSA claimant rate has now fallen every month since May 2013.  However, welfare reform has dominated the news over the last few days, especially following the live televised debate on welfare on Channel 4 on Monday that coincided with the final episode of the controversial ‘Benefits Street’ reality TV show and interventions from the leader of the Roman Catholic Church in England, the archbishop of Westminster Vincent Nichols.

During the televised debate, commentators on the left, such as author and columnist Owen Jones and Huffington Post political editor Mehdi Hasan, highlighted the relatively large share of the welfare budget attributed to people in work but on low incomes.  They identified low pay and/or part-time or zero hours employment alongside rapid rises in private rents as areas that required urgent attention from the Government.  Although not directly disputing the share of the total welfare bill paid to those in work, those on the right, including columnist Allison Pearson and DWP Minister Mike Penning, strongly advocated the view that work was the best way out of poverty and that incentivising benefit claimants into work would significantly reduce the welfare bill (as well as furthering a ‘moral mission’, according to David Cameron in an article in the Telegraph today).

This morning, the DWP published their quarterly statistical summary of key benefit payments, which enables some exploration of these arguments.  In August 2013, there were 5.4 million working-age claimants accessing either out-of-work benefits or in-work income support. The largest proportion claimed Employment and Support Allowance (which replaced Incapacity Benefits and the Severe Disablement Allowance in 2008), accounting for 45% of total working-age claimants (2.4 million).   JSA claimants accounted for 23% of the total (1.3 million claimants).  The remainder, 1.7 million, received benefits that could be claimed by those in work, such as lone parent or carers’ support, other Income Support, and Disability Living Allowance.  

However, these figures do not include Housing Benefits.  These are paid via Local Authorities to those on low income (whether working or out-of-work) to cover part or all of ‘reasonable’ weekly rents for their area,  and reported  by the DWP separately.  Of the 5 million Housing Benefit claimants, 3.7 million were working-age.  Of these, over a million Housing Benefit claimants were in employment and not on other ‘passported benefits’ (benefits that individuals eligible for other means-tested benefits, such as JSA, may also be entitled to, such as Income Support).  When looking specifically at new Housing Benefit claims registered since 2010 -  the vast majority of new claimants (over 90%) were in work.

So in summary, the Government are right to highlight the high proportion of working-age benefit claims because of illness or disability, but JSA accounts for a relatively small proportion of total working-age claimants (less than a quarter).  This total does not include Housing Benefits – where almost a third of working-age claimants were employed.  A final point to add is that, by focussing on working-age claimants, this analysis explicitly excludes state pensions which, according to the DWP’s annual report, accounted for 49% of the total national welfare budget (excluding administration costs), with Housing Benefit the next largest share, at 11%.  JSA claimants counted for only 0.4% of the total welfare budget in the 2012-13 financial year.

Unemployment and Employment Rates
According to the latest Labour Force Survey data (for October to December 2013), the unemployment rate[1] fell by 0.4 percentage points on the previous quarter, to 7.2% of the economically active population aged 16 and over.  The number unemployed fell by 125,000 on the previous quarter  (July to September 2013).  The total number of adults who are estimated to be unemployed is 2.34 million.

The number of people unemployed for over one year has also decreased, by  45,000 on the previous quarter (to a total of 845,000). 

The employment rate (for adults aged 16-64) increased on the previous quarter, by 0.3 percentage points to 72.1%, equivalent to 30.15 million resident adults in employment in the UK (an increase of 193,000 on the previous quarter).  Within this increase, the number of self-employed people increased strongly (by 172,000).  Previous analysis, that shows an increasing proportion of self-employed in lower-skill occupations since the onset of recession, suggests that this trend could be a cause for concern.  A significant number of these individuals could be ‘necessity entrepreneurs’, entering self-employment having failed to secure a job, and being vulnerable to low pay, casualised and low hours work.

Earnings Estimates
Earnings growth remains weak and below the rate of general price inflation, despite a fall in the CPI rate to 1.9% in the 12 months to January 2014 (below the Bank of England’s 2% inflation target for the first time since November 2009).  Total pay (including bonuses) rose by 1.1% and regular pay (excluding bonuses) by 1% between the periods October to December 2012 and October to December 2013. 

Job Seekers’ Allowance Claimants
The number of Jobseekers’ Allowance (JSA) claimants in January 2014 fell on the previous month, by 27,600, whilst the rate was down 0.1 percentage points to 3.6% (and down 1 percentage point on the same month a year earlier).  This is the eighth consecutive month in which the rate of claimant count unemployment has fallen. 

Redundancies and Vacancies
In the three months to December 2013, 111,000 people were made redundant, down 13,000 from the previous quarter and down 34,000 from the same period a year earlier.

The number of vacancies (advertised through Jobcentre Plus) in the three months to January 2014 increased by 28,000 on the previous quarter to total 580,000.  The number of ILO unemployed adults to every one vacancy in the three months to December 2013 was 4.1, down 0.4 percentage points on the previous quarter.

Key Regional Developments
  • Compared to the previous quarter, unemployment rates and levels fell in all English regions except for the South West.  The most significant falls were in the West Midlands and the South East, where the numbers unemployed fell by 31,000 and 37,000 respectively whilst the rates fell by 1.2 and 0.8 percentage points.
  • The North East continues to have the highest rate of unemployment of the nine regions, at 10%, although this fell by 0.2 percentage points on the previous quarter.  In the South West, the unemployment rate increased by 0.1  percentage points to 6.5%.
  • In the East Midlands, the unemployment rate was 6.9%, equivalent to 162,000 individuals unemployed according to the ILO definition, compared to 7.2% in the UK.   Compared to the previous quarter, unemployment in the East Midlands fell by 0.2 percentage points and 4,000.  Employment increased slightly, by 7,000 individuals and 0.1 percentage points to a rate of 72.6%, above the UK average of 72.1%

[1] According to the International Labour Organisation (ILO), this is defined as those who are out of work but available for, and actively looking for, employment within a set period.  This is expressed as the proportion of ‘economically active’ (employed plus unemployed) adults.