The UK’s headline unemployment measure is significantly understating the recent rise in joblessness, while the often-used claimant count measure is hugely overstating the increase, according to a new Resolution Foundation report published today (Thursday).
With changes to people’s employment status arguably the most important indicator of the state of the economy for most households, The truth will out shows that the headline labour market measures are failing to show what’s actually happening to millions of people’s livelihoods during the crisis, and calls on the ONS to provide a far clearer picture.
The report comes as the Government’s official fiscal watchdog has projected unemployment to rise to a record four million by the end of the year, and ahead of the latest ONS labour market statistics at 7am today.
The truth will out says the gulf between the two headline unemployment measures was brought to the fore in last month’s official data release. The headline unemployment measure increased by just 34,000 in April to reach 1.3 million, while the claimant count rose by a record 1 million to reach 2.3 million in April (and has since grown to 2.8 million in May). Both measures are completely wide of the mark, says the report, but for very different reasons.
The Foundation notes that with other indicators, such as data on hours, vacancies and the number of employees on PAYE, pointing to a huge labour market shock, many people have focused on the sharp rise in the claimant count.
However, this measure overstates the rise in unemployment because it includes people who are claiming Universal Credit (UC) but who would not count as unemployed, such as people waiting for a health assessment, and, crucially, furloughed workers who initially made an out-of-work claim when the crisis first struck.
Taking these factors together, the report estimates that fewer than half (700,000) of the 1.6 million increase in the claimant count between March and May is related to people who are newly out-of-work, and not receiving furlough pay or self-employed grants from the Government.
Given that many furloughed workers who initially made an out-of-work benefit claim are expected to come off the claimant count soon, and that many self-employed people will lose UC entitlement when they receive their Self-Employment Income Support grants, the report says that changes in this measure in the coming months may continue to offer an inaccurate impression of the state of the labour market.
The truth will out also shows that the headline unemployment measure is equally misleading as it classifies anyone who is not actively looking for work – a common status during an economic lockdown when vacancies have completely collapsed – as economically inactive rather than unemployed.
This explains while there was barely any change in unemployment during April, while economic inactivity increased by 425,000.
The report notes that key employment measures provide better insights, but also face challenges in describing accurately the state of the labour market. The headline employment measure includes people who are temporarily not working, while timely PAYE data misses out the self-employed, and includes employees who are not working but are being paid (including furloughed workers). Other measures are needed to get a better understanding of Britain’s jobs crisis, says the Foundation.
The truth will out says that data on total and average hours worked – average hours fell by a record 23 per cent between early March and late April – offers a clearer picture of the real state of the labour market. It also urges the ONS to make more of its ability to count the number of workers who are employed and not temporarily without work alongside the headline employment rate, as this would provide a far more accurate picture of labour market activity.
The Foundation says that an accurate labour market data really matters – to help the public understand the impact of the Covid-induced economic crisis, and to help policy makers deliver an appropriate policy response.
Mike Brewer, Chief Economist at the Resolution Foundation, said:
“Britain is in the midst of an unprecedented economic shock that is profoundly affecting millions of people’s jobs. Unemployment is forecast to hit four million for the first time ever. And yet our official data is failing to show the true extent of this jobs crisis.
“Last month, figures showed that unemployment increased by either 30,000 or one million. All we really know is that both are completely wrong.
“Accurate labour market data matters for both public understanding of the crisis we face, and for how Government responds to it. It is vital that our national statisticians provide a more accurate picture of what’s happening to people’s jobs – however grim the reality may be.”