MNI INTERVIEW: Better ONS Data Suggest Easing UK Labour Market

Doubts over UK employment data cited as a reason for policy caution by the Bank of England have largely been cleared up, leaving a picture of a gradual easing of the worker shortages which tightened the labour market and crimped economic growth, academic and Office for National Statistics research associate Donald Houston told MNI.

The reweighted Labour Force Survey released last week showed a slight decline in unemployment as the economy contracted at the end of last year, easing doubts over October’s edition, whose low response rates and uptick in joblessness despite labour market tightness had prompted the BOE to refer to “increased uncertainties” over ONS data in its December minutes.This time the ONS cross-checked with other sources, including tax data and population surveys, in addition to knocking on the doors of those who do not respond online, Houston said in an interview.

"The figures are broadly accurate. It's when you start drilling down into short-term change and small population subgroups that you do need to be a bit more careful," Houston said, adding that the greatest data collection challenges had been posed by migrants and renters, groups which are particularly difficult to reach through surveys. (See MNI BOE WATCH: BOE Holds, Hiking Bias Removed From Statement)

The response rate in the new, rejiggedLabour Force Survey released last week has increased by around a third from October’s low of 14% and it is likely to improve again as the Transformed Labour Force Survey (TLFS) is rolled out in September, Houston said.

"It was horrendously low. The new model of collecting the data has increased it and significantly improved representation of harder-to-reach groups but it's still relatively low," he said.

"The biggest fog for me is around foreign-born workers. And the rebasing that we've seen ... has indicated that there's 135,000 less EU workers than we previously thought,” Houston said.

COVID ANOTHER FACTOR

"But I don't think there is much fog around the headline labor market indicators really, maybe a bit around the reasons for inactivity .. I think the key labor market indicators don't have much fog around them. As long as you don't unthinkingly look at change between one set of monthly figures and the next.”

Houston has also carried out research into the effects of ill health fromCovid on the labour force.

"The pandemic is probably the big story, which will reduce labor supply through an increase in economic inactivity, and a big rise in ill health amongst people of working age," he said, adding that the effect of the UK’s exit from the European Union was being felt to to a "lesser extent".

According to Houston, flat or falling unemployment and economic weakness can co-exist when the labour supply is restricted.

"It doesn't surprise me that unemployment was falling, because there were labor shortages which are continuing in some quarters" he said.

Within the BOE, Monetary Policy Committee member Jonathan Haskel has been an early champion in stressing the role of this reduction in the labour supply in driving inflation higher and weighing on activity.