As MPs describe as a major blow the Office for National Statistics’ admission that its troubled Labour Force Survey could take until 2027 to be fixed, Rob Moss looks at how policymakers and economists are being ‘left in the dark’.
Since the pandemic, the Labour Force Survey (LFS) has been dogged by problems, including a significant drop off in response rates, calling into question the reliability of data used to make policy decisions.
The ONS has been developing a transformed, online-first version of the LFS as the long-term solution to falling response rates, but that project has been a “difficult and challenging experience for many, which has affected wellbeing and confidence at all levels”, according to a report released this week.
A letter written yesterday by the chief executive of the UK Statistics Authority Sir Ian Diamond to the Treasury select committee appeared to dismiss the possibility that the move to a new transformed LFS will happen in 2025, suggesting instead that the move will happen in 2026, with a possibility of delay until 2027.
Committee chair Dame Meg Hillier said: “This letter paints a daunting picture. The fact that we could be waiting another two full years until we see such a crucial dataset reach the proper standard is a major blow.
“These delays will make some of the most consequential decisions taken by the Treasury and Bank of England challenging at best and misinformed at worst.”
The LFS is the official monthly measure of employment and unemployment, but response rates have plummeted. Some experts have pointed to a global trend where people are less likely to answer their phones and share personal information.
In 2010, the LFS response rate was around 50%. This fell to 40% during the pandemic and has dropped to around 20% in recent years. The latest figures shared with the committee have shown an increase from 17.4% in Jul-Sep 2023 to 24.6% in Jul-Sep 2024.
In a Lessons Learnt Review published this week, the ONS said the uncertainty relating to the project to transform the LFS has “had a profoundly negative impact on morale and wellbeing, which [has] corroded relationships, undermined confidence in the vision, and affected buy-in”.
Get Britain’s stats working
Last month, the Resolution Foundation think tank published Get Britain’s Stats Working, a briefing note exploring alternatives to the LFS. Using other data sources, it presented alternative time series for the employment rate suggesting that the true level is “likely materially higher” than that recorded by current LFS data.
The Resolution Foundation built a new estimate of the employment rate using primarily HMRC payroll and self-employment data alongside population estimates. It said this aligned well with the LFS rate before 2020, but the two estimates have since markedly diverged. Whereas the existing LFS says that the 16+ employment rate has declined by 1.2 percentage points since the end of 2019, the “admin-based” approach would suggest essentially no change.
Crafting good policy is made harder still if the UK does not have reliable employment statistics” – Adam Corlett, Resolution Foundation
It added that if the LFS is underestimating the employment rate, it must be overestimating the unemployment rate and inactivity rate in some combination. The Resolution Foundation estimates the most recent unemployment rate is 3.9% rather than the 4.3% in the LFS.
As a result, it is estimated that the inactivity rate is also likely to be materially overestimated. Whereas the LFS currently says the inactivity rate has risen by 1 percentage point from 2019 to 2024, the Resolution Foundation’s main estimate suggests there has been almost no increase.
Adam Corlett, principal economist at the Resolution Foundation, said: “Official statistics have misrepresented what has happened in the UK labour market since the pandemic, and left policymakers in the dark by painting an overly pessimistic picture of our labour market.
“The ONS Labour Force Survey appears to have ‘lost’ almost a million workers over the past few years compared with better sources. This has led to official data underestimating people’s chances of having a job, overstating the scale of Britain’s economic inactivity challenge, and likely overestimating productivity growth.
“The government faces a significant challenge in aiming to raise employment, even if the rate is higher than previously thought. But crafting good policy is made harder still if the UK does not have reliable employment statistics.”
Augmented labour data
Last week, Huw Pill, the Bank of England’s chief economist, told the economic affairs committee that there are question marks over the LFS, so its analysis is “augmented” by a whole set of other sources of data. He said the Resolution Foundation’s estimates were “quite consistent with work that we have done internally at the Bank”.
He shared with the committee that the Bank also looks at the “administrative data”, particularly those reported by the Department for Work and Pensions.
“When you compare when you ask people ‘Why are you not active in the labour market?’ and people do say ‘Well that is because I am long-term sick’ – the increase in that number since the pandemic is quite significantly higher than the increase in the administrative data as reported by the DWP of people applying for and able to claim various types of disability and sickness benefit,” said Pill.
He added: “I don’t think administrative data and the use of it is necessarily a panacea for all problems. It’s a question of being clear of what the problem you are trying to address is, be clear about how you’re going to analyse it, and the use of an appropriate set of techniques and statistics in order to have a view on that.
“I think that for many of the macroeconomic questions that I am dealing with… I think it’s at least important to have a functioning labour force survey – and hopefully, in the not too distant future – transformed labour force survey data, internet-based, which has higher response rates because I think that will give us an insight that we won’t get just from the administrative data.”
Productivity
Yesterday, the ONS also revealed that under its existing LFS, the UK workforce was 484,000 bigger than previously estimated in the Spring. The new estimate of 33.5 million people in employment in Apr-Jun 2024 meaning the workforce had grown since the pandemic.
This meant that output per hour worked was 0.9% lower than the same period in 2023, rather than 0.3% lower as previously estimated.
This change in productivity data demonstrates how LFS data feeds into myriad policies that are developed in the face of perceived problems in the UK economy, from big-ticket reforms such as Get Britain Working, to the Bank of England’s Monetary Policy Committee’s regular decisions on setting interest rates.
It seems unlikely that 2027 would qualify as the “not too distant future” that the Bank’s chief economist is hoping for.
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