Has the UK really ‘lost’ a million workers?

Andrew Bailey is frustrated. The governor of the Bank of England needs to know what is going on with Britain’s jobs market to decide whether to cut or raise interest rates but lamented last week that he does not have a “good read” of the situation.
To put it bluntly, the official data is flawed. This is sparking questions about whether the unemployment rate is really 4.3 per cent and whether Britain’s problem with the number of people who are “inactive” — not in work or looking for a job — is as bad as it looks.
Last week the Treasury committee of MPs wrote to the statistics authorities to demand answers. And the Resolution Foundation think tank tried to provide its own solution. It reckoned that almost one million workers may have been lost from the official employment count.
For 50 years, the Office for National Statistics (ONS) has conducted the “Labour Force Survey” (LFS) of households to ask them whether they are in work (employed), out of work and looking for work (unemployed) or out of work and not seeking a position (inactive). The participants need to take part for five quarters (essentially a year and three months).
During the pandemic, the ONS found that households were less willing to reply. The response rate collapsed from 39 per cent to 13 per cent between 2019 and 2023.
The ONS wrote to people and then knocked on their doors to make sure they took part but during the lockdowns such face-to-face follow-ups were not possible. Those who did reply were more likely to be older and living in their own homes, rather than rented accommodation, which skewed the data.
Yet even when pandemic restrictions eased, the door knocking became less successful. Among the theories why is one curious suggestion that people with “Ring” doorbells — which provide a visual image of who is at the door — could decide not to answer to the ONS caller with a clipboard.
A year ago, the ONS had to admit that it was not getting enough responses to its survey to make its data accurate.
Since January the ONS has started to approach more households to try to reduce the failure rate and also offer participants more cash. They used to be offered £10 in total but since October 2023 each household stands to get £150: £25 for agreeing to take part (which they keep even if they do not continue) then £25 for completing the survey for the first time, and £25 for each of four further interviews. The average time it takes per household to fill in the survey is 45 minutes.
“We have increased the sample size, reintroduced face-to-face interviewing and increased incentives for those taking part,” a spokesperson for the ONS said.
The aim is to shift to a “transformed” Labour Force Survey (TLFS), which is being trailed through introductory letters containing a QR code that can be scanned from a mobile phone. The questionnaire is also shorter and focussed on key questions — such as employment status and hours worked — to try to shorten the response time to 15 minutes. Households receive £10 for each time they fill in the survey and get a branded notepad in their invitation.
This is not an easy change. Initially the ONS aimed for this to be used for official data from September, but in July it was delayed with no new timetable.
The ONS spokesperson said: “Our long-term solution remains the online-first Transformed Labour Force Survey, which approaches many more people in different ways. We are currently testing a shorter version of this questionnaire, with early responses looking positive. We will publish findings of this test in the new year, alongside potential timetables for the TLFS.”
Given the government has crucial data about how many people are claiming benefits and how many people are on company payrolls, such a survey might seem unnecessary to gauge what is going on in the jobs market.
However, this does not give the full picture. Without asking, the government does not know why people are not working or whether they are looking for a job.
Even using data on benefits claimants does not give a clear picture, as people can still be in work and claim benefits, while over the years government policy on those who can claim benefits can change — making the data inconsistent.
The survey also feeds into other data, such as that published last week showing that the number of young people who are not in education, employment or training — known as NEETS — was the highest for a decade. But, even as it published the NEETS data, the ONS admitted its problems with the LFS meant changes should be “treated with caution”.
The Labour Force Survey is also helpful because similar surveys are used in other countries, and so it can provide international comparisons. In some countries, participation in the surveys is compulsory:— for instance in Belgium, Germany, Greece, Spain, France, Italy, Cyprus, Luxembourg, Malta, Austria, Portugal, Slovakia, Norway and Turkey.
But even in countries where participation is mandatory, response rates fell during the pandemic. In Germany, the non-response rate jumped from 5.8 per cent in 2019 to 46.8 per cent the following year when Covid restrictions were in place.
Next month the ONS will explain how it intends to revise its survey to tackle changes in the population. Since 2020, immigration from outside the EU has been high due to people arriving from Ukraine after Russia’s invasion and also from Hong Kong after a political crackdown by China. Work visas for people in the health and social care sectors also led to a jump in arrivals from non-EU countries such as the Philippines, Nigeria, Ghana and Zimbabwe.
This change may be one reason why the Resolution Foundation has calculated that 930,000 workers may be missing from the ONS data. The think tank has created an alternative measure of the employment rate by looking at payroll, tax and population data, which tracked the LFS until 2020, when it diverged.
By the Resolution Foundation’s calculations, the employment rate may be 76 per cent rather than the 75 per cent calculated by the ONS. That might not sound much but equates to around 500,000 people extra in work.
Understanding the true rate of employment is important because it affects the way the government can use carrots and sticks in the benefits system to entice people back to work and design training programmes for those out of work. For the Bank of England, knowing how many people are in work and looking for work can be an indicator of whether there will be demands for higher wages — which can be an indicator of inflation — or show whether the economy is expanding.
It also means that concerns about the rise in “inactivity” since the pandemic could be overblown, according to the Resolution Foundation. It is an issue that the government intends to address soon in a white paper called “Get Britain Working”, which will set a target to reach an employment rate of 80 per cent.
“This goal only highlights the fact that we do not know what the UK’s employment rate actually is,” said Adam Corlett, principal economist at the Resolution Foundation.