The truth behind the unemployment figures

3 Mar 2017

 

The quarterly unemployment rate and employment figures have become a major political influence in recent years. The positive or negative news they present offers reassuring evidence of government policy or something for the opposition to strike with. However as the results now carry big political sway  it is time to question whether they be relied on as accurate evidence of the health of the UK job market?

 

George Osborne used these unemployment figures regularly as chancellor, in March 2016 he jumped on “the UK’s jobs miracle” and included the most recent unemployment figures as proof. David Cameron also used the statistics to prove that the Conservatives had created 1,000 jobs per day while in power.   

 

Are these figures secure and reliable enough to back up such inflated claims? Doubts have been cast on their accuracy before and with a quickly changing jobs market do the figures honestly reflect the experience of workers and job seekers in the UK today and do they really carry such political weight?

 

 

A Labour Force Survey

 

The Office of National Statistics (ONS) is the body that compiles the unemployment forecast and it does so in two main ways. The most accurate, and most quoted, figures are compiled through a Labour Force Survey but another figure is also released which is the claimant count, reflecting how many people are receiving job seekers allowance. The results of the Labour Force Survey receive more attention as the more accurate and detailed picture of the UK jobs market.

 

In the Labour Force Survey the ONS sends a questionnaire to a 60,000 sample group asking if they have actively sought work in the past month or could take work in the next fortnight if offered. The first and most obvious flaw in this methodology is that it relies inherently on the honesty and accuracy of those 60,000 people however this method is still an internationally used and renowned way of compiling unemployment statistics.

 

Another quirk in how the Labour Force Survey works is that the numbers can fall, or at least fluctuate, if a recipient has simply given up on, or even taken a break from, searching for a job in the month before receiving the survey. Similarly numbers can drop if an amount of people are unable to take a job in the two weeks following the survey, perhaps due to a holiday or illness. Rather than indicating a rise in people in work, it simply indicates inactivity and as such these recipients are labelled ‘economically inactive,’ a group that also includes students, stay-at-home parents, retirees and the long-term ill.

 

The Hidden Unemployment Statistics

 

Perhaps unsurprisingly these figures have faced doubts and criticism previously. The TUC in 2012 announced their suspicions surrounding these regularly released figures, claiming they were inaccurate because they failed to include people who had not searched for work recently or under-employed people, those who take part time work after being unable to find full time work. It was claimed that if those were included the unemployment total would be almost 4million higher.

 

Brendan Barber, TUC general secretary, said at the time that, “When ministers say there are plenty of jobs out there, they are ignoring the sheer numbers of people looking for work, as well as the suitability and location of the jobs available." Osborne and Cameron clearly did not take this advice as the unemployment statistics remained a big part of the Conservative pitch in the 2015 general election.

 

More recently phenomenon such as zero hour contracts and apprenticeships, that pay as low as £3 per hour, have lowered the unemployment rate further despite being low paid, unstable and in the case of zero hour contracts, may not actually see someone working each week as the name suggests. The growth in this area of work has been labelled ‘the gig economy’ and it is estimated that up to 5 million people work in this way which contributes to a lower tax return, lower living standards and growing ‘underemployment.’

 

Disguised unemployment is another area where although not counted in the unemployment statistics people may not be working or working as much as possible. This includes those on sickness benefits but able to do some jobs, those forced into redundancy or early retirement and those in part time or zero hour work. Zero hour contracts have, the ONS revealed this week, reached their highest ever levels with 910,000 people on contracts not guaranteeing regular work, a 30% increase since 2014.

 

Source: Nomis via New Statesman

 

Last year a study in the New Statesman Magazine found that once all of these other areas are factored in a ‘true’ unemployment rate could be closer to 12% rather than the 5% that government published at the time. The TUC and others have argued that the UK should mirror the USA which compiles a ‘U6’ measure of unemployment that includes discouraged, marginally attached and under-employed workers.  

 

The miracle will continue

 

As a result of not including any underemployment, economic inactivity and long term sick naturally the unemployment figures look much more impressive for the government. In Feb 2017 the ONS announced the jobless rate held at an 11 year low of 4.8% in the three months up to December 2016.

 

However there were signs of the underlying true unemployment rate and the underemployment excluded from these figures. Wage growth remained slow and inflation increased, sparking a fear of a real term wages fall in the near future, Ben Brettell, senior economist at Hargreaves Lansdown, told the BBC: "With inflation forecast to hit 2.8% early next year, a deceleration in pay growth could see real wages fall at some stage."

 

It is evident that there are serious flaws in not only the methodology of the employment and unemployment statistics but also that they neglect a large, growing and worrying sector of work. With almost a million zero hour contracts added to economically inactive, underemployed and those who have given up searching, an honest unemployment rate would be much higher. However this is not something any government would be keen to admit to, despite the problems it causes in tax returns, productivity and skills shortages across the country, so expect the so-called ‘jobs miracle’ to continue for the foreseeable future.

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