Better labour market data

This blog was originally published on the website of Adzuna, one of the largest online job search engines in the UK.

One area currently of concern to policy makers is the extent to which labour market tightness has created upwards pressure on wages and has been feeding through into prices, and whether interest rate rises aimed at combatting inflation might now be leading to an economic slowdown and rising unemployment. To answer these questions, researchers require high quality labour market data.

The Labour Force Survey (LFS) has historically been one such source. This statistical survey conducted by the Office for National Statistics has been collecting data on the employment circumstances of the UK population since 1992. It is the largest household study in the country and provides the official measures of employment and unemployment, which are crucial headline indicators of the health of the nation’s labour market.

However, response rates to the survey have been falling for a while, with the pandemic accelerating this decline when face-to-face interviews ceased, forcing the ONS to rely on phone interviews. A smaller sample of survey responses reduces the confidence we can have in the headline estimates (i.e., the margin of error around the central estimate). Furthermore, differences in the likelihood of an individual responding to the surveys by group introduces the potential for the estimates to also be biased (i.e., not centred on the true figure).

This issue came to a head last month, when the ONS was unable to publish official estimates based on the LFS, relying instead on experimental estimates which took previous headline estimates from the LFS and updated them using HMRC’s PAYE RTI data and the Claimant Count, which themselves have their own issues making the fact that these were deemed more reliable that the official LFS estimates even more alarming.

The ONS is more than aware of these issues and has put in place plans to improve the LFS to reintroduce it as the regular source of official estimates on labour market activity, as well as continuing with the transition towards a ‘Transformed’ LFS next year.

Read more here.