MNI INTERVIEW: Some Positives In Cloudy UK Labour Data

While unadjusted UK Labour Force Survey data have been revealed to be unreliable, some of its components still provide useful policy signals, including measures of growing levels of economic inactivity which have caught the attention of the Bank of England, economics professor and Office for National Statistics research associate Donald Houston told MNI.

Inactivity in the UK work force, particularly due to ill-health, appears to be stabilising at high levels after surging in the wake of the Covid pandemic, Houston said in an interview. The data is likely to figure in deliberations ahead of this week’s decision by the BOE as it weighs whether to further raise interest rates, despite the ONS’s recent admission that the survey from which it comes has become less representative.

“The portion of people aged 16 to 64, who have a work limiting health condition, rose from just over 16% to just over 18% between 2019 and 2022 … Over a three-year period that is a massive impact,” Houston said, adding that this upwards trend together with overall economic inactivity appears to have stabilised. “You would expect, you would hope, that it will start to come down again as NHS waiting times come down, as the prevalence of long COVID comes down. But these could be quite slow processes over years.” (See MNI INTERVIEW: UK's Inactive Population Steadies At High Level)

BOOMERS RETIRE

The post-pandemic rise in sickness seems to have affected the UK worse than many other European countries, perhaps reflecting National Health Service capacity constraints as well as slightly worse population health metrics, he said.

An additional weight on labour supply is demographics, with baby boomers moving into retirement.

“It hasn't really posed much of a problem until quite recently, because there was … this bulge of younger baby boomers still in the workforce to compensate for the high rates of retirement. But because this is the tail of the baby boomers … we've got quite a small cohort of people in their 40s and 50s behind them now. So that had quite a big effect over the last few years and it's going alongside the pandemic,” he said.

The pandemic also seems to have hit the flagship Labour Force Survey, with the ONS acknowledging this month that response rates had fallen following the shift to online and telephone surveys.

“There is a problem looking at very recent, and current, rates of change in the numbers of people in the workforce,” Houston said, adding that while the problem should not be exaggerated it does pose a difficulty for the BOE given its focus on very recent changes in the labour supply.

METHODOLOGICAL CHANGE

In October the ONS introduced methodology to adjust LFS headline labour market indicators in light of trends in employment and unemployment from tax and benefits data, a change which Houston said "gives some reassurance." It will also switch to simplified questions for easier online data collection and targeted door knocking and telephoning to boost response rates.

"The unadjusted LFS is still, even now, … good for a lot of purposes, because the survey weights that are used in it do go a very long way to correcting for response biases. So if you're doing some analysis of the labor market that is based on percentages in different groups, such as the percentage of people of working age who have health conditions … if you're dealing with weights, you can do a lot of useful analysis,” he said.

Seeking to better understand changes to the labour market coinciding with pandemic upheaval, the BOE has tasked its economists with an in-depth supply side stock take, which MNI understands will be ready in February.