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4.2 Stocks by Benefit Type

The time paths of all benefits combined, for each of the counterfactual cases, are shown in Figure 8. The inflows and transition rates observed over the economic cycle clearly have a substantial effect on the total number of benefit recipients and on their changes over time. Even for the three counterfactuals having identical long run equilibrium numbers, there are substantial differences at the end of the projection period. Furthermore, even when the shift to pre-GFC rates implies an immediate fall in total numbers the movement towards the equilibrium is not monotonic. The aggregate number of beneficiaries decreases for about four quarters, until gradually increasing towards the equilibrium.

Figure 8 - All Benefits Combined
Figure 8 - All Benefits Combined.
Figure 9 - Domestic Purposes Benefit
Figure 9 - Domestic Purposes Benefit.

Figure 9 shows the implications for DPB recipients. In this case, the shift from post-GFC inflows and transition rates to pre-GFC rates does not imply a reduction in numbers, but simply a slowing down in their rate of increase, for each of the three less-pessimistic cases. At the end of the projection period, the three counterfactuals continue to produce quite different stocks.

The importance of allowing for the dynamics of inter-beneficiary-category movements is shown in Figure 10 for the case of Invalid's Benefit numbers. This displays the situation where a shift to pre-GFC inflows and transition rates actually leads to higher numbers in receipt of IB than under post-GFC conditions, for all the three relevant counterfactuals. This result is perhaps counter-intuitive, particularly when it is considered that the flows onto IB from outside the benefit system are generally higher under post-GFC conditions and, furthermore, the average time spent in each of the IB categories is higher in the post-GFC transitions than for the pre-GFC transitions. However, the higher IB stock is only a temporary phenomenon, and the fact that equilibrium stocks are eventually lower in the three more optimistic counterfactuals is indicated in Figure 10 which, unlike the other diagrams, extends the projection period further out to November 2022.

As shown in Table 2 of the previous section, the average flows onto SB are very much higher than for any other benefit category, and the increase in the inflows as a result of the GFC is much higher than for the other benefit types. This is especially true of the younger SB categories. A characteristic of the inter-benefit transitions, as shown by the matrices in Appendix C, is that the movement from SB to IB is higher in the pre-GFC period than in post-GFC conditions. These features combine to generate the temporary rise in IB numbers above the post-GFC counterfactual.

The large differences in the inflows to SB categories produce, as expected, quite rapid reductions in SB numbers following the shift from post-GFC to pre-GFC conditions. These are illustrated in Figure 11. Indeed, the two most optimistic counterfactual cases converge quite rapidly towards their long run equilibrium, in view of the dominance of the inflows from outside the benefit system.

Figure 10 - Numbers in Receipt of Invalid's Benefit
Figure 10 - Numbers in Receipt of Invalid's Benefit.
Figure 11 - Numbers in Receipt of Sickness Benefit
Figure 11 - Numbers in Receipt of Sickness Benefit.
Figure 12 - Numbers in Receipt of Unemployment Benefit
Figure 12 - Numbers in Receipt of Unemployment Benefit.

The substantial differences between the inflows to unemployment between the pre- and post-GFC conditions, combined with the small number of movements into the UB categories from other benefit types, means that the three most optimistic counterfactuals shift quite quickly to the long-run equilibrium. These simulations are shown in Figure 12. Finally, Figure 13 shows the results for Miscellaneous and Under 18 Benefits.

Figure 13 - Miscellaneous and Under 18 Benefits
Figure 13 - Miscellaneous and Under 18 Benefits.
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