Incorrect jobs data leaves the UK employment situation uncertain, economists say.

British ministers are set to raise employment costs at a time when gaps in official data make it difficult to assess the hit to jobs, economists say.

In Wednesday's Budget, Rachel Reeves is expected to announce higher national insurance premiums for employers. This is legislation that means fewer jobs or lower wages over time. In addition, it is expected that an increase in the minimum wage for youth will be promoted to protect the common people and stabilize public finances.

Meanwhile, official estimates suggest the government's employment rights reforms will cost businesses up to $5 billion a year to benefit workers, with the impact concentrated in low-wage sectors such as hospitality.

However, the impact of these changes will depend on the state of the jobs market, which is clouded by uncertainty due to long-term problems with the Office for National Statistics' labor market survey.

This is a really bad problem. if you don't know [the unemployment rate]“It’s hard to know whether we can raise the minimum wage,” said Tim Lunig, a professor at the London School of Economics and a former government adviser.

When jobs are scarce, people with higher qualifications can get a deal, but those earning minimum wage cannot, and the result is unemployment, he said. I worry about the people at the bottom.

Assessing the risk of a 9.8% increase in the minimum wage for adults this year to $11.44 per hour is currently more difficult than usual. This is because there are large discrepancies between data based on the LFS, the only source of information on unemployment and economic inactivity, and alternative employment indicators such as tax records, job advertisements and business surveys.

Official figures based on the LFS show that the UK's unemployment rate has fallen to a historically low level of 4% since the start of the year, but the labor force remains smaller than before the pandemic as many people remain out of work due to illness and disability. sideline.

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No other wealthy economy has recorded a decline in its labor force since 2020. Recognition that the UK has unique problems of increasing inactivity, wages and labor shortages has made the Bank of England more wary of cutting interest rates and has led ministers to focus on: Promote employment.

However, the ONS stopped issuing LFS a year ago. This is because the response rate was so low that the survey results were too unstable to be trusted. The agency is now re-publishing the figures, but they are not shown because official statistics and economists view them as unreliable.

Analysis by the Resolution Foundation think tank shows that different data sources show very different trajectories. They said employment had returned to pre-pandemic highs by 2022, but high borrowing costs and uncertainty about government policy had led to weakening employment and a small rise in the unemployment rate over the past few months.

Last May, BoE Chief Economist Huw Pill wrote to the ONS highlighting these discrepancies, emphasizing the urgency of revising the LFS and the impact of the poor quality of the LFS on interest rate decisions.

Compared to other data sources, the LFS is still missing millions of workers, representing significantly increased uncertainty for policymakers at a critical time for the economy, he said.

BoE chief economist Huw Pill told the ONS in May that the labor force survey was still missing millions of workers. Graeme Sloan/Bloomberg

Nye Cominetti, chief economist at the Resolution Foundation, said the picture between LFS and other indicators could not be more different. The lack of clarity was a big problem for the BoE but made it difficult to calculate how much the minimum wage could be raised without harming employment, he added.

The independent Low Pay Commission will next send recommendations to state ministers on where to set the minimum wage rate from April next year, leaving open the opportunity for Reeves to announce a new rate in the Budget .

The body will make recommendations calling for key adult wages to be kept at least two-thirds of median hourly earnings, under new powers set out by the government. This makes Britain's wage floor one of the highest among rich countries. .

The LPC said in September that hourly wages would need to rise by 5.8 per cent to 12.10 to achieve this target, but has not yet confirmed its forecast.

But the council has also been asked to increase rates for 18 to 20-year-olds, currently 8.60 per hour, to the main adult rate, while setting rates for under-18s and apprentices as high as possible without damaging employment prospects.

This is a delicate judgment, as young people are more likely to be out of a job than more skilled workers and more likely to suffer lasting harm if they become unemployed at a critical time in their careers.

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Job posting data shows school leavers and graduates are entering one of the most difficult job markets in decades, with record levels of applicants per vacancy. LFS-based data shows that while the overall unemployment rate has fallen this year, youth unemployment has risen.

Last year the LPC warned that problems at the LFS had made its work more difficult and uncertain. It also called attention to similar issues affecting a separate earnings survey from the ONS, the only official source of detailed information on hourly wages.

The Treasury declined to comment on budget speculation. The ONS said it expects the quality of LFS-based statistics to improve significantly from the first quarter of 2025 as work to increase response rates and re-weight data comes into effect.

The BoE and LPC said they were now using a range of alternative data sources to make their own judgments about the labor market. But Professor Alan Manning of the London School of Economics said the LFS issue would make it more risky for the commission to decide where to set the minimum wage.

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