ILO be damned? - Capital Economics
UK Economics

ILO be damned?

UK Economics Update
Written by Ruth Gregory

The latest data highlighted a diverging trend between the two main measures of unemployment. Neither measure is perfect, but at least the claimant count is timelier than the ILO measure. Until the ILO measure catches up, we are putting more weight on the former as a guide to the unemployment fallout so far.

  • The latest data highlighted a diverging trend between the two main measures of unemployment. Neither measure is perfect, but at least the claimant count is timelier than the ILO measure. Until the ILO measure catches up, we are putting more weight on the former as a guide to the unemployment fallout so far.
  • A few months ago, we forecast that the level of unemployment would rise by 1.6 million and that the unemployment rate would increase to a little above 8.5% by July. (See here.) With the number of people claiming work-related benefits in May having already surged by 1.6m, from 1.2m to 2.8m since March and the claimant count unemployment rate having risen to 7.8%, we are already pretty much there on the claimant count measure of unemployment. But we are nowhere near on the ILO measure of unemployment. In fact, the data released this week showed that this measure of unemployment fell by 8,000 in the three months to April, leaving the level of unemployment steady at around 1.34m. (See Chart 1.) And the ILO unemployment rate did not rise at all from its near 45-year low of 3.9%.
  • The government’s furlough scheme is unlikely to explain all the difference between the two measures since it is designed to keep people in employment and prevent them from claiming benefits. The gap does not appear to reflect differences in coverage either. The ILO measure is a wider measure of unemployment. It includes those that don’t have a job but who have been actively seeking work and are available to start work in the next two weeks, whether or not they claim benefits. So it should be the ILO measure of unemployment that’s higher, not lower, than the claimant count! And there are many people captured by the ILO that can’t claim benefits, such as 16 to 17-year olds. If we take these people out, the gap would have been even larger, with ILO unemployment falling by a further 20,000 in the three months to April.
  • Nor does the divergence reflect the difference in the time periods covered. The claimant count measures the monthly rise, while the ILO counts unemployment over three months relative to the previous three months. So April’s 8,000 fall in ILO unemployment, for example, is the change between the three months to January and the three months to April. Of course, we do have single-month ILO figures for April, which showed that employment fell by 429,000. But a 425,000 drop in the labour force meant that unemployment only rose by 34,000. And while comparing the two measures on a like-for-like three-month rolling period points to a more muted rise in the claimant count of 350,000 in April, it still does not explain the divergence.
  • In fact, when we account for both the differences in coverage and time periods, there is still a 480,000 or so gap between the two measures in April – the largest since comparable data began in 1992. (See Chart 2.) It may be that the ILO measure is simply not doing a good job of measuring unemployment given the difficulties in the collection of the survey in the post-Covid era. The answer may also lie in the fact that the government raised the generosity of Universal Credit in March and many more people have become eligible for Universal Credit, as their income has fallen below a certain threshold. So just as the ILO may currently be understating the fallout from the crisis, the claimant count may be overstating it.
  • Overall, this leaves us a little more hopeful that the ILO unemployment rate will not rise as fast nor as far as we had previously anticipated. We have been expecting a rise to around 8.5% by July. But given the unwinding of the government’s furlough scheme from August (see here) and rising bankruptcies (see here), we suspect it is only a matter of time before ILO unemployment follows the claimant count higher.

Chart 1: Claimant Count & ILO Unemployment (mn)

Chart 2: Gap Between ILO & Claimant Count (000s)

Source: Refinitiv

Source: ONS


Ruth Gregory, Senior UK Economist, +44 7747 466 451, ruth.gregory@capitaleconomics.com