Our labour market analysis

May 2017

Learning and Work Comment

The latest labour market figures published on 17 May appear to point to a robust labour market. However, the unexpected rise in claimant unemployment could point to trouble ahead.

Duncan Melville, Chief Economist at Learning and Work Institute, commented:

Today's numbers show that for the first three months of 2017, there was a strong rise in employment compared to the last quarter of 2016, with employment increasing by over 100,000 in the last month, and unemployment falling to the lowest level since mid-1975. Inactivity amongst people of working age is also falling. Vacancies also rose again in today's figures.

These figures all point to a labour market in rude health as we move towards the General Election, but achieved perhaps at the expense of living standards: pay growth has decelerated again to 2.1% and this is now below the latest inflation rate of 2.7% which is expected to rise to 3.0% by the end of the year. We appear on track to have the worst decade for living standards since the Napoleonic Wars.

However, the second monthly rise in the claimant count tell a different and concerning story. The number of claimant unemployed in April was 53,000 higher than two months before and higher than a year earlier. The claimant count appears to be rising quite sharply, though our judgement on this must be qualified because of ongoing issues with how ONS are seasonally adjusting this data which has been affected by the move from Jobseekers' Allowance (JSA) to Universal Credit (UC) for unemployed people. Year on year changes have been rising since September last year. The JSA flows are also concerning: a rise in JSA inflows despite the move to UC, and outflow rates are dropping. Hence, there may be something going on not yet captured in the employment, unemployment and economic inactivity numbers that all come from the Labour Force Survey which in timeliness lags the claimant count numbers by around six weeks. Is this the calm before the storm?"

In this release, the Office for National Statistics has not reported the claimant count of unemployed Universal Credit and Jobseeker's Allowance claimants. The ONS continue to produce the figures, but do not include them in their report. We have included them in this analysis, but the reasons that led the ONS to withdraw them apply to our analysis as well.

In the Jobseeker's Allowance data, claims are counted from the first day of a claim, while in the Universal Credit data, people are not counted as a 'start' until they have accepted a 'claimant commitment' following a meeting with Jobcentre Plus. This means that the ONS attempts to identify actual change rather than regular seasonal patterns (seasonal adjustment) has been thrown off. ONS has not yet addressed this.

The overall effect is that we are not entirely confident that the very sharp rise in the claimant count shown over the last two months are genuine rises, or just a change in the way patterns of claims are reflected in the administrative data. We continue to estimate future unemployment and vacancies per unemployed person using these figures, but we recommend a higher than usual degree of caution.

Paul Bivand, Learning and Work AD for Statistics and Analysis said: "A rise in the claimant count is consistent with JSA inflows being higher than JSA outflows for the first time since 2012. Our independently seasonally adjusted JSA retention and outflow rates numbers also show JSA off-flow rates falling to levels seen in 2012-13 - substantially lower than in between. All this looks like it could be a trend-change.

The new claims figures for Universal Credit (and to a lesser extent Jobseeker's Allowance) are particularly important as they are the first labour market figures to show the signs of any economic shocks. In the current Brexit and Trump-related uncertain times for employment and trade it is vital that we have clear sight of any large and unexpected changes. It is therefore unfortunate that we have large and annually repeated shifts in the claimant count due to these administrative changes."

The government has set out an ambitious agenda for full employment, skills reform, social justice and devolution. But on the ground, reforms to the funding and delivery of employment programmes, health services, apprenticeships and skills have dramatically changed the environment in which we all work. So while the next few years will be times of uncertainty at home and abroad, they will also be defined by how we respond to the opportunities and challenges that we face. We will be discussing the challenges posed by labour market and other changes at the Into Work Convention in July 2017. We hope to see you there.

Employment rose by 122,000 between October to December 2016 and January to March 2017. In the last 12 months employment has grown by 381,000.

Unemployment fell by 53,000 between October to December 2016 and January to March 2017. and the unemployment rate reduced by 0.2 percentage points to 4.6% in the quarter the lowest level since 1975.

Economic inactivity fell by 40,000 between October to December 2016 and January to March 2017. and the inactivity rate fell 0.1 percentage points to 21.5% in the quarter, a new record low.

The rise in the claimant count takes account of normal seasonal effects but adjusted figures are not published for local areas. The actual number of claimants, nationally, rose by 4,900 in the month to April, compared to the adjusted rise of 19,400. Therefore, it should not be surprising that figures for local areas will show smaller rises compared to the national picture.

The proportion of people leaving the claimant count (or the ‘leavers rate’) has fallen. At 16.3%, it is now well below the level in early 2015 of 20%. The number of new claims has fallen. Jobseeker’s Allowance off-flow rates for JSA claimants of short durations increased. Off-flow rates remain at historically high levels.

Youth unemployment is showing a quarterly fall. There are still 562,000 unemployed young people, and 365,000 (5.1% of the youth population) who are unemployed and not in full-time education.

The proportion of unemployed young people (not counting students) who are not claiming Jobseeker’s Allowance and therefore are not receiving official help with job search is now 58.4%.

A total of 96,000 were counted as in employment while on ‘government employment and training programmes’, where the Office for National Statistics continues to count Work Programme (etc.) participants as ‘in employment’ by default. This number rose 9,000 this quarter, the last quarter for Work Programme referrals. Self-employment fell 13,000 this quarter. Employee numbers rose 136,000 in the quarter. Involuntary part-time employment fell this quarter by 78,000 to 1 million, 12.4% of all part-time workers.The proportion remains nearly double that in 2004. 

Key Facts

  • Unemployment is 1,541,000, is down by 18,000 from last month’s published figure (quarterly headline reduced by 53,000) and the unemployment rate is 4.6%, down 0.1 percentage points on last month and down 0.2 percentage points on last quarter.
  • The number of claimant unemployed is 792,800, up 19,400 on last month, and the claimant rate is 2.3%.
  • The number of workless young people (not in employment, full-time education or training) is 965,000, down 39,000 on the quarter, representing 13.5% of the youth population (down 0.5 percentage points).
  • Youth unemployment (including students) is 562,000, down 5,000 on the quarter.
  • There are 2.0 unemployed people per vacancy. Learning and Work Institute estimates this figure may rise next month.
  • The employment rate is 74.8% (up 0.2 percentage points on last month’s published figure and up 0.2 percentage points in the preferred quarterly measure).