A new study has warned that official data on the rates of economic inactivity and unemployment in the UK may not be entirely accurate, and that the overall situation may not be as bad as stats suggest.

The report by the Resolution Foundation questions the data put out by the Office for National Statistics’ Labour Force Survey, and says: “WEe currently do not know what the UK’s employment rate actually is.”

The Foundation also believes that the issue with the Labour Force Survey (LFS) data “has been ongoing for sometime” and that it has “broad implications for UK economic policymaking.”

According to the study: “A decline in LFS response rates may well have opened the door to uncorrected changes in non-response bias, with workers potentially less likely to respond relative to the rest of the population.”

The Financial Times reports that policymakers in the UK were concerned about a decline in the country’s workforce in the aftermath of the COVID pandemic, with many people saying they couldn’t work due to long-term health conditions.

These stats were in contrast with some other countries, which seemed to have recovered from the pandemic and showed higher economic activity and employment rates.

Overestimation, underestimation

But the Foundation challenges this perception by comparing official LFS data to figures shared by other agencies such as the HMRC’s Realtime Information (RTI) payroll administrative data, as well as the ONS’s own Workforce Jobs (WFJ) estimates.

The study argues that those later two sets of data are more reliable when looking at the annual change in employment rates, and that this is something the LFS itself agrees with.

Overall, the study suggests that “the LFS had underestimated growth in the number of workers by over 1 million between Q4 2019 and Q1 2024.” This would mean Britain was the worst performing country in Europe over that period.

And that in itself is a suspicious stat, since Latvia was the only other country across Europe that showed a decline in employment and economic activity figures over the same period.

“If the LFS is underestimating the employment rate, then it must be overestimating either or both of unemployment or inactivity,” the Foundation has said in its findings.

The second issue with LFS’s data is that the response rate to its survey dropped from 39% in 2019 to just 13% in 2023. This significant drop opens the door for more statistical inaccuracies.

Also, the drop in respondent numbers was likely to be accompanied by a change in the make-up of people who were (or were not) taking part in the survey. This again opened the door for response bias.

Lastly, the study suggests there is a possibility “that the LFS has struggled to adequately represent recent arrivals to the UK since 2020, a period when immigration from beyond the EU has been especially high.”

Health benefits

One key observation is that recent drop in economic inactivity has been accompanied by a sharp rise in claims of health-related benefits, according to reports.

A House of Commons insight published in March 2023 said: “Long-term sickness accounted for 28% of total inactivity at the end of January 2023, up from 23% at the start of 2019, making it the most common reason for economic inactivity.”

The report also added that “a further 2% of economic inactivity is due to temporary sickness.” The number of working age unemployed people started to rise even before the pandemic, but saw a sharp increase after it.

But Adam Corlett, principal economist at the Resolution Foundation, told the FT official data has been “underestimating people’s chances of having a job, overstating the scale of Britain’s economic inactivity challenge, and likely overestimating productivity growth.”

Resolution Foundation also argues that: “Many people who had begun claiming benefits in the past few years were already out of work, and there had been offsetting falls in the number inactive for other reasons, such as family responsibilities.”

As reported by the BBC earlier this year, more than 300,000 unemployed people in the UK couldn’t work due to caring responsibilities. Almost the same number of people were unemployed students. A small number were retired, and some others were simply ‘discouraged’ to find work.