APPENDIX 38
Memorandum submitted by Christina Beatty
and Stephen Fothergill (EDP 49)
SUMMARY
This submission focuses on the first in the
list of issues that the Inquiry is expected to pursue—the
extent to which the high numbers claiming Incapacity Benefit represent
hidden unemployment. This is the central issue from which conclusions
about appropriate policy interventions inevitably follow.
Our view probably differs from that put forward
by the disability lobby and the Department for Work and Pensions.
In particular, our extensive research has led us to conclude:
— That the exceptionally large numbers
claiming Incapacity Benefit (IB) are primarily the result of a
shortfall in the demand for labour.
— That this shortfall, and the resulting
high numbers on IB, is especially concentrated in certain parts
of the country, particularly older industrial areas.
— That the main solution to the problem
lies with regional economic policy.
It is nevertheless important to emphasise that
the health problems facing IB claimants are unquestionably very
real. Also, there is no reason to suppose that the vast majority
of IB claims are anything less than legitimate. Our point is simply
that a stronger labour market outside the South would mean that
more people with health problems would be in work and there would
be far fewer IB claimants.
These are bold assertions and we therefore begin
by explaining a little about our research. After commenting briefly
on the benefits system, we then summarise the main evidence. We
move on to present the latest figures on the scale of hidden unemployment
among IB claimants before concluding with comments on the ways
that people with health problems might be assisted into employment.
THE SHEFFIELD
HALLAM RESEARCH
Although we have acquired a reputation as commentators
on incapacity and unemployment, this is a field into which we
have stumbled.
We began with the riddle of the coalfields.
[43]Despite
the closure of most of the mines, by the mid 1990s recorded unemployment
among men in the coalfields was lower than when the pits were
working. We set out to explain why. What we found, to our surprise,
was that the main labour market adjustment in response to the
loss of jobs in the coal industry was a big withdrawal from the
labour market by men of working age. This in turn was mainly a
reflection of a surge in the numbers recorded as permanently sick.
Comparisons with fully-employed parts of the country prompted
us to argue that a portion of this recorded sickness represented
hidden unemployment. We repeated this exercise for disadvantaged
rural areas[44]
where we also found that levels of recorded sickness appeared
to be holding down recorded unemployment.
We subsequently extended these analyses to cover
the whole of Great Britain, first in 1997[45]
and again in 2002. [46]Both
national studies point to high levels of hidden unemployment among
IB claimants, but with a pronounced regional concentration.
More recently, we have carried out extensive
interview surveys. The surveys now cover more than 3,000 non-employed
adults of working age, spread across 12 localities around Britain.
Nearly half of the interviews have been with IB claimants. The
surveys are written up in a variety of reports[47]
and in a book due out shortly. [48]A
detailed case study of IB claimants in one town[49]
and a theoretical exploration of the links between employment,
recorded unemployment and recorded sickness have also been published.
[50]
Although we were among the first to draw attention
to the role of IB in hiding unemployment, at least in the "urban
and regional" field the idea is now widely accepted.
THE BENEFITS
SYSTEM
The different way in which the benefits system
treats claimants of Jobseeker's Allowance (JSA) and Incapacity
Benefit is important. Crucially, Jobseeker's Allowance—the
main benefit for the claimant unemployed—is means-tested
after six months (and earlier in the case of those with insufficient
National Insurance credits). Incapacity Benefit, on the other
hand, is not means-tested except for a small number of new claimants
with substantial pension income. Furthermore, IB is paid at a
slightly higher rate than JSA, and the IB claimants who actually
receive Income Support (because they have insufficient NI credits)
are paid a disability premium.
The point is that for many of the longer-term
jobless who suffer from health problems, the differential in benefit
rates creates an incentive to claim IB rather than JSA. For example,
an unemployed man in his 50s with a wife in work and a pension
from a previous employer will not generally be entitled to means-tested
JSA. In essence, his wife's earnings and his pension reduce or
eliminate his JSA entitlement. But if he has sufficient NI credits
to be entitled to Incapacity Benefit (which most men with a work
history will have) he will receive a weekly sum irrespective of
his wife's earnings or in most circumstances of his pension as
well.
The gatekeepers determining access to Incapacity
Benefit are medical practitioners—initially the claimant's
own GP, but for claims beyond six months doctors working on behalf
of the Benefits Agency. In theory, to qualify for IB a person
must be unfit for work. In practice, the tests applied by the
Benefits Agency assess ability to undertake certain basic physical
tasks rather than inability to do all kinds of work in all circumstances.
Many older people have picked up injuries over the course of their
working life, and there is the effect of simply getting older.
In practice, therefore, many of the long-term unemployed with
health problems are able to claim IB rather than JSA.
THE KEY
EVIDENCE
There are two key pieces of aggregate statistical
evidence which suggest that this potential diversion from JSA
to IB is happening on a large scale.
The first is the rising number of IB claimants.
Figure 1 shows the number of men and women of working age (16-64
for men, 16-59 for women) claiming IB (or its predecessor Invalidity
Benefit) for more than six months. These figures provide the most
reliable guide to trends in long-term dependence on IB because
they exclude claimants over state pension age, whose entitlement
to IB was phased-out between 1995 and 2000 and produced a misleading
fall in the headline number of IB claimants. The chart shows that,
adjusted to working age, the numbers have risen more or less continuously
for two decades. In 1981 there were 570,000 men and women in this
category. By 2001 the figure had risen to 2,060,000. Even this
is not the full picture. Added to this there are more than 300,000
further claimants of working age receiving Severe Disablement
Allowance (SDA), which is paid to people with a high degree of
disability but insufficient NI credits to qualify for IB. There
are also more than 200,000 short-term (ie less than six months)
IB claimants of working age. Official statistics show that in
Britain as a whole in August 2001 there was a grand total of 2.65
million people of working age claiming sickness-related benefits.
Of these, 1.60 million were men and 1.05 million were women.
It is highly unlikely that there has been a
four-fold increase in the level of long-term incapacitating illness
in the workforce over the last two decades. Indeed, the increase
has happened at a time when general standards of health are known
to be showing a slow but steady improvement, admittedly with the
slowest improvement among the most disadvantaged groups.
The other key piece of evidence is the distribution
of sickness claimants across the country, show in Figures 2-5.
These maps use data for August 2001 from the Department for Work
and Pensions. The data includes all the men and women of working
age claiming Incapacity Benefit or Severe Disablement Allowance.
In each district the figures are expressed as a percentage of
the estimated working age population.
The maps show that there are exceptionally large
numbers of sickness claimants in places such as South Wales, Merseyside,
North East England and Clydeside. In many districts in these areas,
sickness claimants account for more than 10% of the entire male
working age population (ie of all 16-64 year olds). The proportion
of women claiming sickness benefits is lower but the geography
is much the same. What these areas have in common is that they
all experienced large-scale job losses in the 1980s and 90s, especially
from traditional industries, and for many years they have all
faced significant unemployment problems. Conversely, in nearly
all of the south and east outside London the proportion of men
and women claiming sickness benefits is below 5%.
Table 1 underlines this point. This shows the
top 20 districts in terms of the share of men of working age who
are sickness claimants. The list is virtually a roll call of older
industrial Britain. Around half of the top 20 are former coalmining
areas, and the list also includes steel towns, former shipbuilding
areas and the cities of Glasgow, Liverpool and Manchester. Not
a single London borough, and no other district in the south or
east, falls within the list. In the top two districts—Merthyr
Tydfil in South Wales and Easington in County Durham, both former
mining areas—more than a quarter of all 16-64 year old men
are sickness claimants.
The evidence from our surveys strongly reinforces
the impression that Incapacity Benefit hides unemployment. The
surveys carried out between 1997 and 2000 focused on non-employed
men and for IB claimants the most important observations were
that:
— The age, skills and qualifications
of these men would anyway expose them to unemployment. A high
proportion are older (over 50), have worked in manual jobs and
have few formal qualifications.
— Ill-health or injury was the main
reason for job loss in only half of all cases. Redundancy was
often the cause.
— Where Incapacity Benefit claimants
are most numerous, for example in the coalfields, the proportion
losing their job because of redundancy rather than ill-health
is highest.
— Half of all male Incapacity Benefit
claimants say they would like a full-time job.
— Though fewer than one-in-ten still
look for a job, over a quarter looked for work after their last
job ended.
— Though nearly all say their health
limits the work they can do, only a quarter say they can't do
any work at all.
— A quarter moved directly onto Incapacity
Benefit from unemployment.
— And for many, their benefit entitlement
is indeed greater on Incapacity Benefit than it would be on Jobseeker's
Allowance.
The situation regarding women claiming IB is
more complex and at present not so well understood. While the
geographical distribution of female IB claimants is broadly the
same as for men, the rising number claiming IB is less easily
explained by a weak demand for labour because the industrial job
losses of the 1980s and 1990s impacted less on women and there
have been rising job opportunities in other sectors. Several other
processes may be at work—for example a possible "learning
process" on the opportunities for claiming IB, and possible
"benefit shifts" for instance from single-parent Income
Support.
Women are still the minority among IB claimants
but they are the fastest-growing group. We have sought to persuade
the Department for Work and Pensions of the merits of commissioning
new research into the rising number of women claiming IB but so
far there has been no commitment.
HOW MUCH
HIDDEN UNEMPLOYMENT?
Our latest estimates of hidden employment among
IB claimants were contained in our recent national report. [51]However,
before setting these out it is useful to clarify what we mean
by "hidden unemployment". Officials from the Department
for Work and Pensions have been critical of our notion of hidden
unemployment. They argue that unless someone is actively looking
for work and available for work (in which case they would fall
within the ILO definition of unemployment used by the Labour Force
Survey) they should not be counted as unemployed.
We take a different view. The important point
is that in places where it is difficult to find work many people
with health problems (and perhaps additional problems too such
as poor qualifications) are realistic enough to know that they
are unlikely to find suitable work. Especially if their benefit
entitlement does not depend on them looking for work (which is
the case with IB) they therefore give up looking. Our definition
of hidden unemployed therefore sets out to include all those who
might reasonably be expected to have been in work in a fully-employed
economy. We try to count them whether or not they happen to be
active job seekers.
Our approach to estimating hidden unemployment
among IB claimants involves establishing a benchmark that represents
the level of claims that could be expected in a fully-employed
economy. For each district, the benchmark is the sum of two components:
— The present day proportion of men
and women of working age who are sickness claimants in fully-employed
parts of south east England.
— The underlying deviation in recorded
sickness levels in each district from the level in this fully-employed
part of south east England. Here we use the proportion of men
and women who were recorded as "permanently sick" by
the 1981 Census, when the figures were still largely unaffected
by the subsequent diversion into hidden unemployment.
This is a robust approach. The benchmark for
each district takes account not only of what has been shown to
be possible in fully-employed areas at the present time but also
of the higher underlying level of incapacitating ill-health in
many parts of the country, for example the coalfields. Excesses
over the benchmark are deemed to be hidden unemployment.
These methods point to a total of 1.15 million
hidden unemployed among sickness claimants (mainly IB claimants).
To put this into perspective, this represents just over 40% of
the total number of sickness-related claimants of working age.
These are the people who might reasonably be expected to have
been in work in a fully-employed economy. However, the figure
of 1.15 million exceeds the total number of claimant unemployed,
underlining the scale of this form of hidden unemployment.
Table 2 disaggregates this hidden unemployment
by sex and region. 670,000 men and 480,000 women are estimated
to be hidden unemployed in this way. The table emphasises the
strong regional concentration. The North East, North West, Wales
and Scotland head the list with an incidence of hidden unemployment
four to five times greater than the South East and Eastern England.
The estimates for this group of hidden unemployed,
or more particularly the men within this group, can be cross-checked
against estimates derived by four alternative methods. Two are
statistical comparisons using alternative benchmarks. The third
and fourth are based on Sheffield Hallam survey data for male
IB claimants. In Britain as a whole in August 2001 a total of
1,460,000 men of working age were claiming Incapacity Benefit.
The four alternative methods generate the following estimates
of hidden unemployment among this group of men:
| Using the level of "permanent sickness" in the South East in 1991 as the benchmark
| 680,000 |
Using the national (GB) level of "permanent sickness" in 1981 as the benchmark
| 730,000 |
Using the share of male IB claimants who say they would like a full-time job (47%)
| 690,000 |
Using the share of male IB claimants who lost their last job mainly for reasons other than ill-health or injury (52%)
| 760,000 |
The number of hidden unemployed men among sickness claimants
generated by the preferred method we described is 670,000. The
fact that five separate methods point to hidden unemployment among
this group of men of between 670,000 and 760,000 gives considerable
confidence.
A further check on the reliability of the estimates of hidden
unemployment among sickness claimants comes from a comparison
with Labour Force Survey data for winter 2001-02. This shows that
of the 7.2 million men and women of working age in the UK who
have a current work-limiting health problem or disability, 1.13
million are economically inactive but say they would like a job
By comparison, the total number of men and women in Great Britain
among sickness claimants who are identified as hidden unemployed
using our methods is very similar at 1.15 million, though our
methods point to 70,000 more men and 50,000 fewer women than this
comparison with LFS disability data.
THE IMPLICATIONS
FOR POLICY
The job destruction in many of Britain's older industrial
areas during the 1980s and early 1990s was so severe that it was
always going to show up among indicators of labour market imbalance.
That this job loss occurred in places where there was often a
pre-existing problem of unemployment exacerbated the imbalances.
Our evidence indicates that these imbalances are now reflected
more in the Incapacity Benefit figures than in claimant unemployment.
Some of the IB claimants are the former employees of the coal,
steel and heavy engineering industries, but the diversion onto
IB affects a wider group. Over the years, competition for jobs
in the less prosperous regions has tended to marginalise the less
qualified, older and less healthy workers from most sectors of
the economy, and many of these people have ended up on Incapacity
Benefit. This is not a problem that will fade away as a generation
finally reaches state pension age because unless additional jobs
are crated in the areas where they live (or alternatively unless
there is large-scale out-migration or out-commuting) the imbalances
in local labour markets will be perpetuated. The IB claimants
leaving the workforce at state pension age do not free up jobs
for young people entering the workforce for the first time.
Against this backdrop, efforts to get IB claimants into work
by providing better advice, training, motivation or tax incentives
seem to miss the point. They may help IB claimants compete for
jobs on a more equal footing, but they fail to address the imbalances
within the local labour markets where most IB claimants live.
The danger is therefore that joblessness is merely shifted from
one individual to another. Ironically it is in the fully-employed
parts of southern England, where there are relatively few IB claimants,
that policies based on individual support have most relevance.
It is in these areas, where there is a shortage of labour, that
IB claimants re-engaging with the labour market seem most likely
to find work.
Ill health or disability is not necessarily a bar to employment.
Labour Force Survey data shows that around half the adults of
working age who report a long-term work-limiting illness do in
fact work, and our survey evidence confirms that only a quarter
of male IB claimants say they can't do any work at all. For the
rest, the limitation is on exactly what work they do, or how much.
The low numbers claiming IB in the fully-employed parts of
southern England illustrate the point that where the demand for
labour is strong, most people with health problems do find work
or stay in work, and they do so without intervention or support
from the employment services. This is the crucial insight that
data on IB claimants offers. It shows that the most effective
way to lower the number of IB claimants is to ensure a strong
local demand for their labour.
What has happened during the period of economic growth since
1993-94 is that the up-turn in demand for labour in older industrial
areas has reduced claimant unemployment but has failed to dent
the stock of IB claimants. This is not surprising. The claimant
unemployed are the most active jobseekers (they have to be in
order to remain entitled to benefit) and they are on average a
younger group with fewer health problems. Nevertheless, with the
stock of claimant unemployment now lower than for more than twenty
years, even in older industrial areas, there is the prospect that
further growth might at last begin to erode the numbers claiming
IB.
Whether this happens depends partly on continuing national
economic stability. It also depends on the extent to which regional
policy—that is, efforts to target growth and new jobs in
less prosperous areas—is given new priority. This is of
particular importance because with full employment in large parts
of the South there is now only limited scope for job generation
through traditional macroeconomic policy (eg lower interest rates)
because of the risk of fuelling inflation. If the Government's
goal of full employment is to be achieved, future job growth will
have to favour the areas where there continues to be significant
labour market slack. This will not happen automatically. It requires
investment in the infrastructure of less prosperous regions and
financial incentives to encourage job creation in these places—a
stronger regional policy in other words. Indeed, with so many
IB claimants concentrated in these areas, regional policy is really
the key to getting people with health problems back into work.
Christina Beatty
Stephen Fothergill
Centre for Regional Economic and Social Research
Sheffield Hallam University
28 January 2003
Table 1:
Male sickness claimants, August 2001, top 20 districts
| % of 16-64 year old men
|
1. | Merthyr Tydfil
| 26.9 |
2. | Easington
| 26.2 |
3. | Glasgow
| 20.7 |
4. | Blaenau Gwent
| 19.8 |
5. | Liverpool
| 18.9 |
6. | Neath Port Talbot
| 18.9 |
7. | Rhondda Cynon Taff
| 18.2 |
8. | Caerphilly
| 18.0 |
9. | Knowsley
| 17.8 |
10. | Inverclyde
| 17.4 |
11. | Wear Valley
| 17.1 |
12. | Torfaen |
16.2 |
13. | Barnsley |
16.1 |
14. | Manchester
| 16.1 |
15. | Gateshead
| 15.9 |
16. | Carmarthenshire
| 15.8 |
17. | North Lanarkshire
| 15.4 |
18. | South Tyneside
| 15.3 |
19. | Anglesey |
15.2 |
20. | St Helens
| 15.2 |
Source: Beatty, Fothergill, Gore and Green (2002)
Table 2:
Estimated hidden unemployment among IB claimants, by
region, August 2001
| Men |
| Women | |
| no. | as % wage
| no. | as % wage
|
| North East | 55,000 |
6.7 | 42,000 | 5.5
|
North West | 138,000
| 6.2 | 96,000 | 4.8
|
Wales | 56,000
| 6.0 | 50,000 | 6.0
|
Scotland | 99,000
| 6.0 | 78,000 | 5.0
|
West Midlands | 63,000
| 3.7 | 45,000 | 2.9
|
Yorkshire and Humberside | 59,000
| 3.6 | 42,000 | 2.9
|
East Midlands | 42,000
| 3.1 | 33,000 | 2.7
|
London | 70,000
| 2.7 | 38,000 | 1.7
|
South West | 32,000
| 2.1 | 21,000 | 1.5
|
Eastern | 26,000
| 1.5 | 22,000 | 1.4
|
South East | 29,000
| 1.1 | 17,000 | 0.7
|
| GB | 670,000 | 3.5
| 480,000 | 2.8 |
Source: Beatty, Fothergill, Gore and Green (2002)
43
C Beatty and S Fothergill (1996) "Labour market adjustment
in areas of chronic industrial decline : the case of the UK coalfields",
Regional Studies, vol. 30, pp. 627-640. Back
44
C Beatty and S Fothergill (1997) Unemployment and the Labour
Market in Rural Development Areas, Rural Development Commission,
London. Back
45
C Beatty, S Fothergill, T Gore and A Herrington (1997) The
Real Level of Unemployment, CRESR, Sheffield Hallam University. Back
46
C Beatty, S Fothergill, T Gore and A Green (2002) The Real
Level of Unemployment 2002, CRESR, Sheffield Hallam University. Back
47
C Beatty and S Fothergill (1999) The Detached Male Workforce,
CRESR, Sheffield Hallam University; C Beatty and S Fothergill
(1999) Incapacity Benefit and Unemployment, CRESR, Sheffield
Hallam University; C Beatty and S Fothergill (1999) Labour
Market Detachment Among Older Men, CRESR, Sheffield Hallam
University; C Beatty and S Fothergill (1999) Labour Market
Detachment in Rural England, Rural Development Commission,
London; and C Beatty, S Fothergill and N Barraclough (2003 forthcoming)
Unemployment and Economic Inactivity in Britain's Seaside Towns,
CRESR, Sheffield Hallam University. Back
48
P Alcock, C Beatty, S Fothergill, R Macmillan and S Yeandle (2003
forthcoming) Work to Welfare : how men became detached from
the labour market, CUP, Cambridge. Back
49
C Beatty and S Fothergill (2002) "Hidden unemployment amongst
men : a case study", Regional Studies, vol. 36, pp.
811-823. Back
50
C Beatty, S Fothergill and R Macmillan (2000) "A theory of
employment, unemployment and sickness", Regional Studies,
vol. 34, pp. 6178-630. Back
51
C Beatty, S Fothergill, T Gore and A Green (2002) op.cit. Back
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