Dumping the discredited Claimant Count: but did we win?

The Office for National Statistics has pulled off a neat trick. With great subtlety, it has bowed to political pressure and dumped the discredited claimant count as the main indicator of unemployment.

This was not so easy for an organisation which seeks to rise above the political fray and establish a more credible role as an agency independent of the day to day business of Government. So it is to their credit that ONS has managed to introduce a new measure of unemployment - a monthly set of data derived from the Labour Force Survey - and kid everyone that it was their own idea all along. And by presenting a "more coherent picture" with a wider set of labour market data, the agency has skillfully relegated the unemployment figures from the front pages to the business pages.

In Opposition, the men and women who now make up the Government were pretty unrelenting in their criticism of labour market data. As some of their best lines came from this organisation, we cannot fault the ferocity and ingenuity of the attack. But, because the criticisms of "fiddled figures" were predominantly in the political arena, this caused three long term problems.

Firstly there was the collateral damage to Government statistics generally as public confidence in official data declined. Even during the mid 1980s, opinions polls showed a majority who believed that falling unemployment was caused by administrative changes and not by genuine economic improvement. That's why the Royal Statistical Society (RSS) established a high powered investigative committee which reported in 1995. It argued that the measurement of unemployment was a problem partly because of the implied "slur on the professional competence and integrity of Government statisticians".

Secondly, many business and economic decision-takers dismissed the debate about unemployment data as mere political froth. Consequently they overlooked the undisputed flaws in the Claimant Count and continued to treat the headline unemployment figures with the same seriousness as (say) the money supply, balance of trade or inflation data. Because the Claimant Count can exaggerate the ups of recession and the downs of boom, City-folk and Treasury-types have often taken wrong decisions by reading the wrong indicator - and then over-reacting. Even now, monetarist hawks are still quoting the claimant count data to argue that Britain's unemployment rate has dropped below the "non-accelerating inflation" equilibrium and this justifies a tightening of fiscal and monetary policy. Combined with an overvalued Pound, this is exactly the response which will help recreate some of the conditions of 1989 which plunged Britain into an early and home-grown recession.

The last problem is that the concentration on unemployment figures tended to obscure the growing importance of other data to an understanding of the complex changes happening to the labour market. This was at the heart of the RSS inquiry - a recognition that the concept of unemployment is no longer as simple as it might have been when the social and economic norm was for one full-time "principal breadwinner" per household. Over a very long period, the British labour market has seen significant growth in part-time work, self employment, early retirement, female participation, increased hours and the end to many forms of regulation. And of course, there have been two very debilitating recessions between the 1970s and the present day, resulting in restructuring, closures and permanent lay-offs.

The net effect is that even the Labour Force Survey unemployment indicator is inadequate. Presently showing 1.86 million, this figure does not measure the under-use of labour in the economy, the unmet demand for work or the social distress caused by unemployment. The latest data shows a total of 4 million who want a job - so the numbers recognised as unemployed by the standard LFS unemployment definition represent only 43% of all those who want to work. Admittedly, many of this 2.4m extra "unemployed" have neither looked for a job in the Survey's 4 week reference period nor are available to start a job within a fortnight - these are the 2 criteria which are jointly used to define a person as having sufficient attachment to the labour market to class them as being unemployed. Many will have given up looking for work whilst almost a million cite domestic reasons for not seeking work. About a third of a million are students.

So should we call them unemployed? Many of these economically inactive people are just those who the Government has designed several of its "New Deal" programmes for. Three quarters of a million say that long term sickness or disability prevent them from seeking a job. And about half those who say they have family or home-caring reasons for inactivity are single parents.

Government interest has shifted strongly towards these groups who are at the margins of the labour market. So with a heightened policy focus on marginalisation and exclusion, ONS has added categories with weak labour market attachment into their monthly data sets. Indeed ,the monthly data also concentrates on the marginally employed and now shows that million people work for less than 6 hours a week. Of these, many want a full-time job. Our assessment of the data - which ONS is not producing monthly - is that 770,000 part-timers want full time work and to satisfy their hunger for extra hours, would require the equivalent of 460,000 new jobs. That's why our estimate of total "slack" in the Labour force is equal to 4.9 million.