Why a falling claimant count is not all good news
January's figures for the number of people claiming Job Seeker’s Allowance (JSA) show small falls in both the total number of claimants and the number making a new claim. But the very high number of people who sign off from JSA without finding a job raises the question of how well this benefit is actually working.
In December, the total number of people claiming JSA stood at 1,606,500, some 15,000 lower than in November, and the second successive month in which there had been a fall.
But this difference of 15,000 in the stock of people claiming JSA is dwarfed by the flows of people making new claims (on-flow) and ending claims (off-flow). In December, the on-flow was 290,000. The off-flow was similarly high, and the very small difference between the two figures accounts for the small decline in the total number of claimants.
That there should be so many new claims at a time of recession is not surprising. The fact that the figure is slightly lower than the previous month is a somewhat encouraging sign.
But what is not clear is why so many people would stop claiming JSA in a month in a recession. When we analysed these figures in the middle of 2009 we found that only half of people leaving JSA were going into work or training. The rest were 'lost' to the system – not working, not training and not claiming.
This observation still holds as the claimant count starts to decline. Even though the numbers ceasing to claim JSA because they have found a job are markedly higher than a year ago, they still only represent a minority of those leaving JSA.
One of the reasons why so many people cease claiming JSA but remain out of work is that the contributory version of JSA, to which anyone who loses their job and has made enough National Insurance contributions is entitled, ends after just six months. After that, all that is available is the means tested version of JSA, to which a workless person with a working partner or spouse would almost certainly not be eligible because household income was too high.
We believe this six-month effect to be significant. The graph shows the size of off-flows by quarter for the last three years. It compares them to on-flows six months previously.
Though obviously it is not true to say that all claimants stop claiming after six months, the numbers match surprisingly well. This suggests that even if on-flows are a good measure of labour market activity, off flows are more a reflection of how the JSA regime itself works.
The fact that so many people leave JSA after six months without finding work is a double cause for concern. For one thing, it means that people who are out of work are not getting the support they need. But it also means that people are either leaving the labour market altogether, or at least becoming more detached from it. This is the opposite of where the government wants people without work to be.
A solution to both these problems would be to extend the period for which people can claim the contribution-based JSA from six months to nine or twelve whilst unemployment remains high. This would be a proper response to the legacy of the recession and one which it would be easy and appropriate to reverse once the economy and employment start growing again strongly.