An essential ingredient in economic policymaking, from interest rates to government spending, is reliable data. But government officials, economists and other number crunchers in Britain are expressing deepening concern over a long-running issue with a data set used to understand a crucial area: the country’s jobs market.
For more than a year, the Office for National Statistics has been struggling to resolve fundamental issues with its Labor Force Survey, a monthly household study that is used to determine how many people in Britain are employed, as well as those who are not working and why.
The survey has suffered from a deep slump in response rates, a problem that got so bad that economists no longer fully trust the flagship jobs report. Instead, they piece together an economic picture using alternative data sources such as tax records and business surveys.
“It changes the game in terms of what I’m doing,” said Andrew Wishart, an economist at Berenberg Bank. “You have to spend a lot of time second-guessing the official statistics.”
Most economists believe that the nation’s official statistics agency has been underestimating Britain’s employment rate and overstating the problem of so-called economic inactivity, which measures how many people aren’t participating in the labor market.
Unreliable data on jobs
Over the years, fewer people have been picking up the phone to answer the Labor Force Survey. The problem reached a crisis point last year, and the Office for National Statistics took the unusual step of delaying the publication of its labor market report and suspended the use of the survey. For several months, the jobs report was based on an “experimental” data series using tax and benefits records.
Amid the struggles with the phone survey, the agency has been trying to transition to an online survey.
The months have dragged on, and the switch to the “transformed labor force survey” has not happened. Last week, the agency said that its ambitions to finish the transition in mid-2025 looked “quite unlikely” and that it instead aimed to complete the process in 2027.
But even that goal comes with a caveat: “We are definitely not giving a heroic promise here about 2027,” Sarah Henry, the agency’s director of methodology and quality, said in an online event last week. “We won’t produce anything that’s not ready.”
Miscalculating Britain’s labor market
The repeated delays are frustrating economists who are setting Britain’s interest rates, government policy, community support programs and other activities. Although data from tax records can be used to estimate employment levels, there are few other ways to understand how many people are not working and, critically, why not. There’s also less information about the self-employed.
The effects of miscalculating the jobs market have accumulated. Take, for example, productivity growth, an important tool for understanding Britain’s economic health and living standards. If employment is higher than expected but economic growth is the same, then productivity growth is lower than previously thought. That can then affect estimates of future economic growth used to set fiscal policy.
“The fact that we could be waiting another two full years until we see such a crucial data set reach the proper standard is a major blow,” Meg Hillier, a lawmaker and chair of the parliamentary Treasury committee, said last week.
“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,” she added.
And the problems call into question recent policy priorities. For the past few years, British policymakers have been wringing their hands about the seemingly troubling phenomenon of the country’s high inactivity rate. It rose during the pandemic, but never fully reverted, as it did in other countries. Hundreds of millions of pounds have been diverted to programs to reduce economic inactivity.
But Britain is probably not that much of an international outlier, said Adam Corlett, an economist at the Resolution Foundation, a research organization, who created an alternative data series for Britain’s labor market using tax records. He estimated that there were a million more workers in the past five years than the official statistics indicated, and that inactivity was lower.
Stephen Evans, the chief executive of the Learning and Work Institute in London, began to lobby the government several years ago to target an 80 percent employment rate. That goal was formally adopted last month but it now it comes with a wrinkle: Where is the country starting from?
The official rate is just under 75 percent. Mr. Evans estimated that 80 percent would require getting 2.3 million more people into work. “But that’s probably wrong and we don’t know,” he said. That makes it hard for organizations like his to devise government and educational policies to help the groups that are most in need.
Dismay at the Bank of England
Two Bank of England policymakers, Catherine Mann and Swati Dhingra, disagree on Britain’s economic and inflation outlook, but both decry the issues with the labor data.
One important factor in understanding inflation and setting interest rates is determining the strength of the labor market. But at the moment, there is insufficient data to explain what is happening when the unemployment rate changes. For example, it is hard to determine whether people are unemployed because they have lost their job or because they are re-entering the labor force but have not found a job yet.
“When unemployment changes, we do not know which way it is going, whether it is in the good direction or the bad direction,” Ms. Mann recently told the Treasury committee.
At an event last month, Ms. Dhingra said, “Many of these real black holes of data definitely constrain our ability to look ahead.”
The statistics agency went some way toward rectifying its data last week by adjusting findings to incorporate updated population data. That increased the level of employment by 402,000 people, which also slightly raised the rate to 74.6 percent. The unemployment rate was little changed at 4.2 percent, and economic inactivity was slightly lower.
A troubled statistics agency
The problems with the labor market data are a source of deep consternation for the Office for National Statistics, which prides itself on being an international leader that trains statisticians in other countries.
In Britain, statisticians have suggested that the survey’s problems are particularly challenging because it is voluntary and time consuming. The survey takes about 45 minutes, and eligible households need to complete it five times over 15 months.
A lot of assistance has been marshaled. Working groups have been convened, independent reviews have been undertaken, more interviewers have been hired and more money is being offered to complete the survey. Response rates for the phone survey rose to 25 percent in the third quarter this year, from about 17 percent a year earlier. A decade ago, the rate was about 50 percent.
But the transition to the online survey has been hampered by issues. Hoping to rectify them, the agency has been running tests with a shorter questionnaire, and it is studying what other countries are doing. Officials also hope the government will consider recommendations, such as making the survey mandatory.
Still, the troubles are weighing on the agency’s staff. It has been a “a difficult and challenging experience for many,” Ian Diamond, Britain’s national statistician, said in a letter to the parliamentary Treasury committee. That has “affected well-being and confidence at all levels,” he said.
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