ONS labour market data ‘lost’ almost a million workers

Britain’s official labour market statistics may be underestimating the number of people in employment by almost 1 million and overstating the extent of the country’s inactive workforce problem.
The Resolution Foundation, a think tank, has calculated that official measures of the state of the labour market produced by the Office for National Statistics have undercounted the levels of employment by 930,000 since the pandemic.
The ONS’s monthly labour force survey have been beset by inaccuracies over the past two years as response rates from Britons have collapsed since the pandemic. The statistics office has said that it is taking measures to encourage people to respond to its questions but has not set a date for its revamped survey to be released.
The ONS survey size, which has fallen from a response rate of just under 40 per cent to only 13 per cent last year, has led to growing complaints from the Bank of England, which has warned that it risks flying blind when making interest rate decisions if policymakers do not have an accurate picture of how many people are in work, unemployed, or economically inactive.
Andrew Bailey, governor of the Bank, on Tuesday told MPs that the ONS had “a lot of work to do” and to ensure clarity on whether the stats body would be able to “get the sample rate up”.
“We think we have a low participation rate,” Bailey told the Treasury select committee, questioning the veracity of the data which has shown the UK suffering from the highest rate of worker inactivity in the G7.
“We are not standing on the sidelines throwing rocks [at the ONS],” Bailey said, but added that he had “found it puzzling we are an outlier” on inactivity rates compared with other advanced economies.
The Resolution Foundation said that the ONS was at risk of failing to speak to enough people with jobs when carrying out its survey which forms the basis of its data. The think tank compiled an alternative measure of jobs using payrolls figures which found a growing gap between the ONS’s estimates of employment and alternative measures.
According to its figures, the Resolution Foundation said that the UK had most probably reached its pre-Covid employment rate peak in 2022-2023 and that the current unemployment rate was probably lower than the estimated 4.3 per cent.
The figures imply that the UK’s missing workers’ problem has been overstated and is the result of a measurement error rather than structural changes in the economy that has led people to permanently fall of out the workforce.
Adam Corlett, principal economist at the Resolution Foundation, said that the ONS’s figures had “painted 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 to 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,” he said.
The findings could have major implications for the Bank, as it suggests the UK’s labour market is not as tight as thought if the inactivity has not risen to historical highs after the pandemic. The ONS said the inactivity rate stood at 21.8 per cent in the three months to September.
“A higher employment rate would therefore require that the true inactivity rate is now significantly lower than thought and — with much less certainty — it could potentially be no higher than in 2019,” the think tank said.