12.8.09

UK Jobless Miscount

UK jobless hits 7.8%.

The UK newspapers are mystified why the numbers of those claiming benefit rose only 24,000 while the Labour Market Survey saw a jump of 220,000.

An pseudo-outraged UK Works and Pensions Secretary, Yvette Cooper, even ordered an inquiry.

The newspapers are simply wrong to say there is a clash or disparity between the jobless measures.

There are many ways to count unemployment - the US Bureau of Labour Statistics has six different measures of unemployment.

http://www.bls.gov/news.release/empsit.t12.htm

Of course politicians or newspapers can highlight whichever measure they like - as they do with the retail price inflation measures.

The point is, what do you want to measure?

1) Someone whose spouse earns a hundred grand can still be unemployed. Do they not count because the can survive on their partner's income? Are you measuring social deprivation or the loss of jobs in the economy?

2) If someone's hours have been cut to the bone, forced to work less than they want - is that a reduction in employment. You are not counted as unemployed (according to the headline measure) if you do one hour's paid work a week.

3) If someone has not actively looked for work in the past month, they are not counted as unemployed. What if they've had to move location, what if there's no transport? Too bad. You are not unemployed (according to the headline measure).

The BLS U6 measure does include all the above, excluding only those who have not worked for more than a year. According to this measure, US unemployment stands at more than 16%.

A quick edit follows of David Webster's excellent analysis

He doesn't try to put a number on the "real" figure - partly due to the deficiencies of the underlying UK jobless data.

These include:

Government Trainees


The ILO definition treats people on government training schemes for the unemployed as being employed. But if they were not unemployed, they would not be on a training scheme.

At the lowest levels of unemployment, adding those on government schemes would raise the ILO unemployment rate by under 0.5%; but at the highest level, it would add almost 1.0%.

The LFS is known to undercount the number of people on schemes, by about half. So these figures should be approximately doubled.

Discouraged workers

To count as unemployed under the ILO measure, you must have looked for work within the past four weeks – even if the only major employer in your area has collapsed.

Together, government trainees and discouraged workers would add about 0.7% to the ILO unemployment rate in low unemployment, and around 1.5% in high unemployment areas. These figures would rise to around 1.0% and 2.0% respectively when allowance is made for undercounting of government trainees. These are significant amounts.

Unemployment disguised as sickness

Most of those discouraged by the state of their local labour market are to be found in the category of sickness. The evidence that a very large number of unemployed people in Britain are disguised as sick is very strong.

The UK has the highest rate of working age sickness of all 15 European Union (EU) countries. The UK rate of 7.0% compares with only 2.1% in Germany and 0.3% in France.

At Spring 2000 just over a third (34.1%) of the 2.3m working age inactive sick in Great Britain said they wanted to work. As a proportion of the UK working age population, this is more people than are inactive sick in total in Germany or France.

If these people were counted as unemployed, they would add 2.7 percentage points to the UK ILO rate, bringing it to the same level as Germany.

Over 55s not counted as unemployed


Evidence is hard to come by but: Similar effects operate in other countries. In relation to the Netherlands, Broersma (2000) notes that "People above 57 years old are no longer included in (the ILO) figure since 1983.

Since then, these unemployed persons were no longer obliged to search actively for a job. By now, there are twice as many recipients as there are registered unemployed.

Misuse of Vacancy Data

During the last 2-3 years there has been an attempt by the government to argue that there is no shortage of jobs anywhere in Britain.

It is argued that because high levels of vacancies are found in cities alongside high levels of unemployment, the unemployment cannot be due to lack of labour demand. But for the most part these vacancies merely represent turnover among the commuter workforce.

Accurate Labour Market Statistics would cost too much

One recent estimate by a lay adviser to ONS from the business community was that an adequate suite of labour market statistics would cost an additional £50m per year.

Why are UK labour stats so deficient?

To a considerable extent we are dealing with a novel problem. There has never previously been such a large group of people claiming sickness benefits who in other respects appear to be unemployed; hence the problem of measurement is a new one.

Some of the worst misrepresentations are of recent origin, with the "workforce" statistics dating only from 1996. And it can scarcely be an accident that the misrepresentations taken together are such as to advance a particular supply-side view, namely that UK economic performance has been good, the loss of manufacturing does not matter, and worklessness is primarily due to deficiencies in the workforce or in the social security system rather than to decisions by investors or the government.

Changes in the economics profession have also played an important role. The last 40 years have seen the rise to dominance of mathematics and econometrics-based economists who are primarily interested in modelling, and the almost complete demise of the older type of "applied economist" who had a broad knowledge of business and affairs.

At the same time, the independence of university researchers has been undermined by changes in financing. They have been made much more dependent upon winning government contracts, while direct public financing has been made dependent upon the Research Assessment Exercise (RAE). This promotes publication at all costs, making it difficult for researchers to spend time on unpopular lines of inquiry in which publication may be delayed or blocked by referees’ objections, and causing the journals to fill up with mediocre material.

ILO data is not comparable

It is true is that ILO rates are estimated using the same procedure in each country. But following the same procedure in different circumstances does not necessarily produce comparable results.

A "Want Work Rate" (WWR) can be derived from the LFS. It is the sum of the ILO unemployed and the economically inactive wanting work divided by the sum of all those in work or wanting work. It has some technical problems (Webster 2001b), but is a useful summary measure of the UK’s overall worklessness from both a time series and an international perspective.

Somewhat dated TUC research reveals into the Want Work Rate suggests more than twice as many people in the UK want a job but are out of work than show up in official unemployment statistics. About 22% of the eight million inactive people in the UK want a job, compared with the European average of just under 10%.

1 comment:

ChrisW said...

Interesting post, although I would question whether this is a new problem. I was unemployed back in the 1908s and had a number of surprisingly candid conversations with the staff at the then DHSS on the various tricks they were being told to use to massage the unemployment figures - re-categorising people, arbitrary new rules to exclude people from counting as "unemployed" and so on. At one point the staff (and their union) even helped claimants provide the politically acceptable responses to a new application form introduced by the Thatcher government to prevent people qualifying as "unemployed". The use of "disability" to re-categorise many long-term unemployed has also been tacitly encouraged for decades as a way to keep people off the headline unemployment count, but this distortion has become so blatant in recent years that it is now seen as almost as big a problem as the unemployment it was meant to conceal. For decades too, the UK government's "unemployment" rate was calculated differently from the ILO's definition or equivalent measures in other countries, yet our figures still ended up higher than similar-sized European countries for much the 1980s and 1990s. Finally, having briefly experienced unemployment in Germany, where benefits are linked to earnings as well as contributions, so you can actually survive on unemployment benefit for a while, I suspect there is probably less pressure in some other countries for people to try (or be deliberately encouraged) to get onto more "generous" alternative benefits. So it's no wonder the UK employment market and related benefits system is such a mess, when we have spent 30 years telling ourselves lies about how many people even need jobs!