1. UNEMPLOYMENT DEALT WITH? NEXT STOP THE ECONOMICALLY INACTIVE
Saranna Fordyce
Economy and Labour Market Division

2. In summary
Need to deal with the big stock of inactive men and women who are:
- disabled with low qualifications
- lone parents
Inactivity is a very different concept to unemployment
Those that don’t look for work don’t find work – and the vast majority that are on inactive benefits aren’t looking.
My presentation today will show how
24-Feb-19
DWP

3. Plan of presentation: What is inactivity? Recent trends
Examining DWP PSA target groups
Reasons for inactivity
Focus on the low qualified disabled
The difference between unemployment and inactivity: by not seeking work inactives will not find work
I’m going to start off this presentation by defining inactivity, then looking at recent trends to see how the economic recovery has not impacted inactivity rates.
I will then look at particular disadvantaged groups for which DWP has PSA employment rate targets.
Possible explanations for the trends we have observed will be discussed and then I will focus on the disabled without qualifications and their particularly worrying inactivity rates
Looking closer at the durations of states of inactivity will then lead us to the conclusion of the importance of looking for work as a means of finding work.
I will then handover to Darek Olesinski who will talk in more detail about the key inactive group of lone parents and the impact of policy on their inactivity rates.
24-Feb-19
DWP

4. A person is defined as inactive if they are out of work, and
Are not actively seeking work, and/or
Are unavailable to start work.
Inactives may be on benefit, or for example people caring for children with working partners or students or are not on benefits
24-Feb-19
DWP

5. In Great Britain: 26.8 million people are in employment
1.5 million people are ILO unemployed
7.7 million people are inactive - around 4 million of these are on inactive benefits
a fifth of the working age GB population are inactive
Spring 2002 LFS, GB, working age
Looking at the working age population…
ILO unemployed levels are at their best since 1979 and it is important to the productive potential of the economy that these 7.7 million inactives are drawn into the labour market.
24-Feb-19
DWP

6. Inactivity rate fallen over the last 30 years, but it has stopped moving with the economic cycle Inactivity Rate (GB, LFS, working age), ILO Unemployment rate (UK, OECD, active population)
The GB inactivity rate has fallen over the last 30 years, but has remained broadly flat over the last 10 years.
The ILO unemployment rate is the proportion of the active population who are available and seeking work, and these rates have shadowed the inactivity rates from the early 1980s. Rising in economic downturns and falling in times of economic recovery, for example at the peak of the last economic cycle in 1990.
As the chart shows, both rates increase in the early 1990s recession, but in the recent economic upturn, whilst the unemployment rates have continued to decline to rates not seen since the mid 1970s, the inactivity rate has remained flat.

7. Inactivity rate has been rising/flat for all male age groups over the last 10 years … Male inactivity rates (LFS, GB working age excluding those in FTE)
Looking more closely at the last 15 years and excluding from our analysis those in full time education:
(why? Because students usually inactive and less of a policy issue)
This chart shows the rates for males in all age groups have been rising since In particular the inactivity rate for year olds has more than doubled- although this is based on a very small sample. The ratre for 50 to 64 year olds is higher at 25%, but this compares well to other OECD countries.

8. The picture is more mixed for women, with younger age groups rising and older age groups falling Female inactivity rates (LFS, GB working age excluding those in FTE)
For women the inactivity rate is declining overall but has risen for those aged 16 to 24.
Again, Britain compares well with the inactivity rates for women in the OECD countries.

9. The main reason given for inactivity is being sick or disabled for men and family/home for women Spring 2002 LFS (WA, excluding those in full time education)
60%
50%
40%
proportion of all inactive
30%
This slide shows the reason respondents to the LFS give for their inactivity.
About 55% of men say they are inactive because of a long term sickness or disability. This proportion has been fairly constant over the last decade, whilst an increasing proportion say they are inactive because they are retired- although as we are just looking at working age men here this would be early retirement.
About 55% of women say they are inactive because they are looking after the family or the home. The proportion who give this as a reason has declined by 10 percentage points over the last decade, but has been matched by the increase in the proportion who give long term sickness or disability as a reason. 25% of women now say they are inactive because they are sick and disabled.
20%
10% 0%
LT sick or
disabled
retired
family/home
not looked
family/home
LT sick or
disabled
retired
other
reason
male
female
24-Feb-19
DWP

10. For PSA target groups employment rates are generally up … Employment rate (LFS spring quarters, working age)
We are now going to look at certain disadvantaged groups for which DWP has PSA targets to increase employment rates and reduce the gap between their employment rates and the overall GB employment rate.
These groups are the over 50s to state pension age, the 30 local authority district with poorest initial labour markets, ethnic minorities, lone parents, the 15% of the population with the lowest qualifications (which for the following graphs are those without any qualifications) and the disabled.
About 80% of inactives are in one or more PSA targets groups suggesting that these groups are well targeted.
60% of these inactives in a PSA groups are in more than one PSA group and are experiencing multiple disadvantages.
For all PSA groups but the lowest qualified (which is a new PSA target group as of this Spring), employment rates are increasing.

11. … and unemployment is down … Unemployment rate (LFS spring quarters, working age)
And unemployment has decreased for all groups.

12. But mixed picture for inactivity Inactivity rate (LFS spring quarters, working age)
For inactivity rates there is a mixed picture.
Rates have declined markedly for lone parents (the pale blue line), and slightly decreased for the disabled (the yellow line), but increased by more than 10 percentage points for the lowest qualified and remained flat for the other groups.

13. Fall in demand for low-skilled labour*
Trade story: Rise in productivity in unskilled labour intensive manufacturing in LDCs + reduction in trade barriers + increase in supply of unskilled labour as workers leave agriculture in LDCs and move into manufacturing at the expense of unskilled workers in developed countries.
Technology story: Technological progress is biased in favour of skilled workers.
*Stephen Nickell, RES Conference, 8 April 2003.
The fall in employment rates and increase in inactivity for the lowest qualified could be explained by economic theory as resulting from trade or technological progress.
The evidence tends support the technology story.
24-Feb-19
DWP

14. Inactivity rate of the disabled without qualifications is very high and increasing… Inactivity rate for disabled (LFS spring quarters, working age)
We now focus on the overlap between two PSA target groups, the lowest qualified and the disabled.
The blue bar shows the inactivity rate of the disabled without qualifications which is very high at about 75% and has been increasing over time. This compares to the inactivity rate for the disabled overall declining to a current rate of about 47%.
24-Feb-19
DWP

15. …but this is not a result of compositional changes Breakdown of the working age population,excluding those in FTE, GB, LFS winter quarters
This chart shows that these increasing inactivity trends are not a result of compositional changes in the no qualified/ disabled population.
For example, you could say that the inactivity rate of the lowest qualified is increasing as the population of those without qualifications is decreasing, as the employed and unemployed become qualified and move out of this group. As younger people are more likely to be qualified, these flows out of the non qualified population are not replaced by equal inflows.
However, for the non qualified/disabled group the population is not decreasing, so any increase in inactivity in this group is a real rather than compositional change.
These trends are the same for both men and women.
24-Feb-19
DWP

16. Inactive population levels by disability and qualification (LFS winter quarters, excluding those in FTE, GB, LFS, working age)
1.2m
1.6m
This group are also significantly sized, with 1.2m of the inactive population being both disabled and without qualifications
0.8m
2.3m
24-Feb-19
DWP

17. Correlation between areas of high unemployment receipt and high inactive benefit receipt Benefits admin data, August 2002 30 2 R = 25 20
% claiming inactive benefits 15
If labour demand can explain the flat inactivity rates, we can examine this by looking at the effect of the local labour market on inactivity.
This chart plots the proportion of the local authority population on unemployment benefit in 2002 against the proportion on inactive benefits (where these are IS, IB, SDA and DLA).
Areas of high unemployment have high inactivity rates which may suggest that people are more likely to be on inactive benefits if there are poor labour market conditions. 10 5 1 2 3 4 5 6 7
% claiming unemployment benefit
24-Feb-19
DWP

18. But there is no correlation between changes over time Benefits Admin data, change between August 2002 and August 1997 3 2 R = 2 1
change in % on inactive benefits -6 -5 -4 -3 -2 -1 1 2 -1
However, this chart of correlation between the percentage point changes from 1997 to 2002 in the proportion of LA population claiming unemployment benefit and then proportion claiming inactive benefits shows there is no such relationship. The proportion on JSA has fallen in nearly all of the LADs, yet for about half proportion on inactive benefits has increased and for half has decreased. -2 -3 -4
change in % on unemployment benefits
24-Feb-19
DWP

19. And there is no correlation between inactivity and the jobs ratio (local jobs/local population)
Local Authority Districts 45 40 35 30
Inactivity rate (%), 2001 25 20
The local jobs ratio, which is the number of local jobs divided by the size of the resident working age population, is a different measure to the local clamant unemployment rate to signify the state of the local labour market.
The lack of correlation seen in this chart shows that it is not the case that areas have high proportions on inactive benefits because there are not jobs available. 15 10 5 R 2
= 0.027 20 30 40 50 60 70 80 90
100
110
120
130
140
Jobs ratio, 2000
24-Feb-19
DWP

20. Key benefits by duration of claim (administrative data, August 2002)
People who have been inactive for longer periods of time tend to be on sickness and disability benefits
Key benefits by duration of claim (administrative data, August 2002)
thousands
This chart shows the durations for those inactives on benefits compared to the claimant unemployed.
Over 2 million on sick and disability benefits have been claiming for more than 2 years, as have the majority of lone parents. This compares to most of the unemployed being on JSA for under 3 months.
24-Feb-19
DWP

21. The majority of claimants of inactive benefits are inactive so most will not be seeking work.
Economic status by client group, proportions, LFS, spring 2002
This chart shows the effects of the conditionality of benefits.
Those on sick or disability benefits or IS for lone parents are much less likely to be looking for work, that is terming themselves as ILO unemployed, than those on JSA.
This is important because by not actively seeking a job people won’t move into work.
24-Feb-19
DWP

22. People not seeking work are unlikely to find work Flows from inactivity in one quarter into employment in the next quarter (excluding those moving from education and those entering retirement, longitudinal LFS)
This chart shows the proportion of inactives and unemployed who move into employment the next quarter.
The higher flow rates for the Unemployed and inactive who are seeking (but unavailable for work) shows that looking for a job is what matters. Wanting one doesn’t.
24-Feb-19
DWP

23. And very few of those that are inactive are seeking work … (% out of work by economic status, LFS)
However, only a very small proportion of the inactive population say they are actively seeking.
24-Feb-19
DWP

24. In summary
Need to deal with the big stock of inactive men and women who are:
- disabled with low qualifications
- looking after the family and home
Inactivity is a very different concept to unemployment
Those that don’t look for work don’t find work – and the vast majority that are on inactive benefits aren’t looking.
Before handing over to Darek to look at what policies can encourage looking for work and aim to reduce the inactivity rate I will just summarise the main points of this presentation.
We need policies to deal with the big stock of inactive men and women that have a limiting longstanding illness and low qualifications.
We need to realise that oinactivity is a very different conept to unemployment and adjust policy accordingly.
This presentation also showed that those that don’t look for work don’t find work – and the vast majority that are on inactive benefits aren’t looking.
24-Feb-19
DWP