The first case of the coronavirus (COVID-19) was reported to the World Health Organization in December 2019 and was subsequently declared a Public Health Emergency of International Concern. This global pandemic is now expected to impact upon the economic outlook for some time to come.
The latest available business surveys in the UK and real-time indicators point to a significant decline in economic activity, while the initial estimates for other countries highlight the extent of the impacts so far on the real economy. The response to the coronavirus will also impact upon the ability of national statistics institutes (NSIs) in compiling estimates of gross domestic product (GDP), inflation and labour market estimates and for the economy more generally. We are responding to these challenges so that we capture the economic activity of the UK in line with the latest international guidance.
The coronavirus pandemic and the government response to its impact have had a significant effect on the UK labour market. Many businesses have ceased operating or have had to change their working practices, while recent government interventions have allowed for the furloughing of workers. In addition, the introduction of social distancing has also changed to the way individuals work or their ability to look for and find employment.
The combined effect of the impacts have not only changed the UK labour market, but also our ability to measure it. The majority of our information relies on data collected from surveys of households and businesses. The temporary closure of businesses, the increase in remote working and introduction of social distancing are having an impact on collecting survey data from households and businesses.
Our immediate response to the coronavirus pandemic, in terms of labour market statistics, was summarised in a recent blog. This article provides further detail and:
describes how we currently measure the labour market in the UK
looks at the conceptual challenges presented by the coronavirus pandemic (including how we propose to treat the Coronavirus Job Retention Scheme (CJRS) and Self-Employment Income Support Scheme (SEISS) in labour market statistics)
outlines some of the significant practical challenges that we expect to face in measuring the labour market in the coming months
More about coronavirus
We use a framework for labour market statistics to describe the major concepts that exist within the labour market and their relationship to each other. The framework is based on the concepts of labour supply and demand, which together provide a comprehensive picture from the perspective of households and businesses. This approach has wide international acceptance, including by the International Labour Organization (ILO).
Labour supply in the UK consists of people aged 16 years and over who are classified to one of the following categories:
employed - defined as doing a minimum of an hour's paid employment in the previous week and those who had a job that they were temporarily away from
unemployed - actively looking for work and available to start work
economically inactive - either not looking for work and/or not available to start work
Our framework distinguishes between these three categories of people, and also between the different working arrangements of those in employment (such as employees, the self-employed and those on government schemes) and the different reasons for economic inactivity (such as a long-term illness or disability). Labour supply is measured using surveys of households and the individuals in them.
Labour demand is represented by employers, who have a need for work to be done, and who offer compensation for this work (earnings) to the employees who undertake it. This work is grouped by employers to form jobs. Labour demand is measured using surveys of businesses. The surveys cover filled jobs but also where there are vacancies and businesses are actively recruiting.
People employed by businesses are compensated for their labour by wages and salaries. Information on earnings from wages and salaries are collected from both businesses and households. The information from businesses is considered more reliable and is used for the leading measures of earnings. However, the information from households is used when it provides information not generally available from businesses (such as level of qualifications).Back to table of contents
The changes in the labour market as a result of the coronavirus (COVID-19) pandemic raise some conceptual measurement challenges. For example, there is likely to be an increase in people temporarily away from work, as a result of sickness or employment policies such as furloughing. How these temporary absences are classified could have a significant impact on the levels of employment recorded during the pandemic.
Similarly, the introduction of social distancing measures and the changes in how businesses are operating will have an impact on the ability of people to look for and find employment. This is likely to change the balance between the number of people classified as unemployed and those classified as economically inactive.
These challenges, though, are not unique to the UK and are also being experienced in other countries with similar economies. The International Labour Organization (ILO), the body that provides the internationally agreed definitions that underpin labour market statistics, has provided a set of guidelines (PDF, 1.16MB) to help statistics offices measure the labour market in the current circumstances. The Office for National Statistics (ONS) are using these guidelines to inform their decisions.
In response to the coronavirus pandemic, both the UK government and devolved administrations have implemented a wide range of policies. The interventions that are likely to be most significant in terms of the direct impact on the labour market are the Coronavirus Job Retention Scheme (CJRS) and the Self-Employment Income Support Scheme (SEISS).
Coronavirus Job Retention Scheme
The Coronavirus Job Retention Scheme (CJRS, also referred to as "furloughing") is a scheme that is in place to help employers whose operations have been severely affected by the coronavirus, specifically with the aim to retain their employees.
If employers are unable to maintain their current workforce, they are able to "furlough employees and apply for a grant that covers 80% of their usual monthly wage costs, up to £2,500 a month, plus the associated employer National Insurance contributions and pension contributions (up to the level of the minimum automatic enrolment employer pension contribution) on that subsidised furlough pay". Furloughed employees must not work for the employer during this period but can work for other employers if their contract allows.
The CJRS payment is subject to Income Tax, National Insurance contributions and the minimum pension contributions. The CJRS payment will be paid to the employer, helping maintain the business and keep their employees on the payroll. This is an explicit condition of the CJRS.
Applying the guidance on measuring labour market statistics, employees who are furloughed will be classified as employed, but temporarily away from work. This will mean that, all things being equal, furloughed workers will not reduce the number of people in employment (or the employment rate). However, the scheme will lead to an increase in the number of employees working no hours and an overall reduction in the number of hours worked. There may be a compensating effect if employees on furlough take other employment, which can be detected from the number of people with second jobs.
It will be necessary to identify those employees on the furlough scheme (who will be receiving wages or salaries but working no hours) separately to ensure consistent measures of labour productivity and unit wage costs. There also needs to be an understanding of how labour market statistics record people on the CJRS and their treatment in the national accounts.
Self-Employment Income Support Scheme
The Self-Employment Income Support Scheme (SEISS) is for people who are self-employed or a member of a partnership in the UK and have lost income because of the coronavirus. Under the scheme it is possible to claim a taxable grant worth 80% of trading profits up to a maximum of £2,500 a month. Eligibility requires that trading profits do not exceed £50,000 and that more than half of recipients' total income is derived from self-employment. Unlike the CJRS, those in self-employment who receive the payment may continue to work in the same job.
The expected impact of the SEISS in labour market statistics is that people will remain as self-employed, but may class themselves as temporarily away from work and record no hours of employment. However, as under the terms of the scheme, they can continue to work or take on other employment, their labour market status and number of hours worked may change during the scheme's lifespan.Back to table of contents
As well as the impact on the UK labour market as a whole, the restrictions and guidance in force as a response to the coronavirus (COVID-19) affect the ability of the Office for National Statistics (ONS) to collect and process data. The number of businesses who have ceased trading or working remotely presents challenges in gathering data from this area of the economy. Similarly, social distancing measures mean that at the moment we cannot collect information from households through face-to-face interviews.
As well as some of the actions taken to mitigate the risks to specific surveys and outputs, described later in this section, the ONS has also taken some wider actions to protect existing outputs and provide new information to inform decision-making. The ones that cover labour market statistics include:
introducing new surveys and additional questions onto existing surveys to specifically measure the impact of the coronavirus; these include an online labour market survey for households and a fortnightly survey of businesses, further information is available in a statement
working with HM Revenue and Customs (HMRC) to provide more timely indicators of employees and earnings from tax data provided by employers
protecting our headline labour market outputs and ensuring we can respond to new demands as a direct result of the coronavirus by suspending or reducing in scope some of our less-used outputs during the current period; full details are available in a statement
The rest of this section looks in more detail at labour market statistics' data sources, outlines their current challenges and the actions we are taking to mitigate the impact.
Labour Force Survey
The primary purpose of the Labour Force Survey (LFS) is to provide good quality estimates for various labour market outputs and related topics. Main measures include employment, unemployment and economic inactivity, all aspects of people's work, job-search for the unemployed, education and training. The sample is made up of approximately 40,000 responding UK households. The LFS is intended to be representative of the entire population of the UK over any three consecutive months.
For the LFS, people are interviewed in five consecutive quarters, with the first interview (wave 1) generally being face-to-face at a private household. During the first interview a telephone number is collected allowing the majority of subsequent interviews to move to telephone-based. A small proportion of later interviews (waves 2 to 5) remain face-to-face, if requested by the interviewee.
As an immediate response to the coronavirus, the ONS suspended face-to-face interviews in March 2020. The ONS initial response was to use telephone matching (finding a telephone number for a selected household) to move face-to-face interviews to the telephone unit and equip field interviewers to carry out telephone interviews. However, telephone matching provides relatively few matched phone numbers. A further process has been introduced where initial contact letters invite people to submit a telephone number through an online portal. Meanwhile we are making every effort to maintain as high a level of response as we can achieve in the current circumstances.
The changeover from face-to-face to telephone interviewing has, though, led to a reduced response rate for some weeks in March, particularly for wave 1. Subsequent waves have also seen a slight reduction in response, but less significant than the wave 1 impact as subsequent waves are predominantly telephone-based. This impact on response will stay with the survey as the smaller wave 1 becomes wave 2 three months later, and so on through subsequent waves. Detailed information on LFS response rates is published each quarter.
The change in collection method and the subsequent reduction in response leads to challenges in four areas: weighting the survey, imputing for non-response, seasonally adjusting the data and the quality of survey estimates.
The different levels of response for certain weeks leads to them being underrepresented within the collective sample for a three-month period. Normal LFS weighting methodology does not differentiate between which weeks within the period that cases relate to. In order to ensure that those weeks affected by lower response are equally represented within the three-month estimates, an alternative weighting methodology has been developed, which uses the reference weeks within the calibration, allowing them to be equally represented.
Imputation for non-response
Where a previous interviewee has not responded, the data provided at the previous interview three months earlier are usually "rolled forward" to the current period. This "rolled forward" imputation only happens for one period of non-response, but not into a second or subsequent period. Normally this method works well because the overall labour market situation changes fairly gradually. In the current situation, previous responses may be less representative than normal. We are currently reviewing how will we will treat non-responders, taking account of wider data sources, such as HMRC Real Time Information (RTI) data and returns from the Business Impact of Coronavirus (COVID-19) (BICS) survey.
The impact of the coronavirus is likely to cause some irregular movements in the estimates. Sometimes seasonal adjustment methodology will smooth this impact away by considering some of it to be a change in the underlying seasonality. We will review our seasonal adjustment approach, as weighted outputs become available, to ensure that seasonally adjusted outputs are correctly reflecting the irregular impact.
Reduction in response and achieved sample size will inevitably lead to increased sampling variability and volatility of survey estimates. This impact will be more significant for detailed breakdowns, such as estimates at a regional level. During this time it will be important for us to continue to communicate information around the quality of the estimates and to highlight issues around quality to users of the survey. Information on how we will do this for LFS results is published.
We are also looking to improve our ability to track the impacts of the coronavirus on the UK labour market, collecting wider information on how labour demand and labour supply are evolving in close to real-time.
New LFS questions
In order to understand better the impact of the coronavirus on the labour market, some new questions were introduced to the LFS from the start of April 2020. These questions are structured as supplementary to existing questions to minimise their impact on ongoing labour market measurement.
The questions focus on looking at whether particular labour market outcomes, such as working more or fewer hours than normal, were linked to the coronavirus. Further detail is sought to differentiate between more detailed reasons such as health, caring or economic drivers. The ONS will look to publish analysis from these additional questions when data are available.
Labour Market Survey (LMS)
To supplement the data collected on the LFS, the ONS has introduced an online only Labour Market Survey (LMS) from April 2020 (see the statement). The LMS has a sample size of around 20,000 households per quarter and asks similar questions to the LFS relating to the labour market, as well as some specific questions relating to the coronavirus pandemic. The ONS will publish further information as results from the LMS become available.
To measure labour demand and earnings information, the ONS produces a number of outputs based on business surveys. These are:
Workforce Jobs (WFJ) - a quarterly measure of the number of jobs in the UK and the preferred measure of jobs by industry; it is a compound source that draws on a range of employer surveys, household surveys and administrative sources
Public Sector Employment (PSE) - a quarterly measure of the number of employees in the UK public sector by government sector and industry
Vacancies - a monthly survey of businesses that asks how many job vacancies a business had in total (on a specified date) for which they were actively seeking recruits from outside their organisation
Average Weekly Earnings (AWE) - the ONS's lead indicator of short-term changes in earnings; it is calculated from returns to the Monthly Wages and Salaries Survey (MWSS), the MWSS captures information about each company's total wage bill and the number of people paid in the reference period; ,having been weighted to the Great Britain level, the total wage bill is then divided by the number of employees to give average weekly earnings
Annual Survey of Hours and Earnings (ASHE) - an annual survey of earnings and hours with information provided by employers for a sample of employees taken from the tax system; ASHE provides information about the levels, distribution and make-up of earnings and hours paid for employees by sex, and full-time and part-time working, estimates are available for various breakdowns including industries, occupations, geographies and age groups within the UK, it is conducted in relation to the pay period covering a reference date, which in 2020 is 22 April
Business Register and Employment Survey (BRES) - publishes employee and employment estimates at detailed geographical and industrial levels; the reference date for BRES is in September each year
While the various surveys cover different aspects of the labour market, they are all affected by the impact of the coronavirus (with the exception of BRES where data collection for the 2019 estimates has been completed) and face similar issues. This section looks at the issues affecting all the surveys. More detailed information about individual surveys is in Annex A.
The measures introduced in the UK to ensure social distancing has meant that a number of businesses have ceased trading (temporarily or permanently) and those that continue to trade may be running at reduced capacity or have staff working partly or totally remotely. This means that it may be harder to obtain responses to business surveys and initial information indicates that this will be the case. Also, the changes in how businesses are operating, and the policies implemented by government (for example, the Coronavirus Job Retention Scheme (CJRS)) means that responses to surveys may not be typical for this period.
The combined effect of lower responses and changes in trading conditions presents challenges in achieving and validating responses, estimating information for non-responders and weighting the responses to produce aggregate estimates.
Achieving sample response
Response ratesfor business surveys for labour market are generally above 80%. The majority of monthly and quarterly surveys were already using online data collection, which is less affected by businesses working remotely. The outstanding surveys (the construction industry element of Workforce Jobs and Vacancies) were moved to online collection in April and May.
The ASHE reference period is in April and the data collection process started at the end of April 2020. ASHE uses electronic data collection for the larger businesses who are asked for information about multiple employees.
This year, the ONS has increased the proportion of data that is collected electronically, meaning that most respondents asked to return data this way will be able to access the data return process from wherever their office is. However, data for smaller companies are collected via paper forms sent out by post and we anticipate substantial issues with response from these smaller businesses. We are investigating feasibility of transferring as many of the "paper" cases as possible to electronic mode, but there will be challenges in trying to contact them to provide access to the electronic route.
Validating reported information
For all business surveys, returned information is run through a validation process. Information from each company is classified either as "Clean" (the employee numbers and pay are in line with expectations based on recent returns from that company and current returns from similar companies) or "n error" (they are out of line with expectations). "In error" cases are investigated via contacting the company, and most are either confirmed or amended, classified as "Clean". However, the remaining "In error" cases are imputed.
In the coming months there are two potential challenges. Firstly, that company returns initially classified as "Clean" are actually inaccurate, for example, the company has failed to incorporate staff or pay changes this period, and secondly that companies classified as "In error" actually reflect true changes. The latter is expected to be a particular challenge in the coming months.
To help address this we have issued an information flyer to accompany all survey invitations, prompting respondents to provide any information about how the coronavirus has affected their business. While this will not be suitable for quantitative analysis, it will provide qualitative information for use in validating returns.
Handling of non-responders
A challenge will be encountered in relation to those companies that do not respond to the surveys.
Usually, information is imputed based on their most recent previous response and/or the pattern of responses for similar companies who did respond. However, in a period when these employee numbers and pay are likely to be unusual, this imputation would produce inaccurate results and therefore we will introduce actions to remove the inaccurate impact of these non-responding companies. This will be through either removal of cases or changing the approach to imputation; consideration is being given to both approaches.
To help inform the approach to the handling of non-responders, a series of non-response follow-up surveys are taking place to establish the reasons for non-response and the characteristics of non-responding businesses.
Producing aggregate estimates
Information from responders to the survey is weighted using Inter-Departmental Business Register (IDBR) frozen employee numbers. These IDBR figures are based on information that is calculated with a time lag. We will consider evidence within our surveys and other sources of employee numbers by sector and may revise the employee numbers that we calibrate to ("employee weights") accordingly.
We are also looking to improve our ability to track the impacts of the coronavirus on the UK labour market, collecting wider information on how labour demand and labour supply are evolving in close to real-time.
Business Impact of Coronavirus (COVID-19) Survey (BICS)
The ONS has established BICS as a new online survey. This has a representative sample of around 17,800 businesses and runs on a fortnightly basis. The survey covers changes in employment, turnover and business expectations.
The first survey went into the field on 23 March 2020, and results are published as part of the Faster indicators release. The information from this survey provides an insight into the effects of the coronavirus pandemic on businesses and is being used to validate the responses to existing surveys and indicate where adjustments to data or methods may be needed.
Pay As You Earn Real Time Information (PAYE RTI)
Since December 2019, the ONS and HMRC have been jointly publishing monthly estimates for employment and earnings from the PAYE RTI system. The estimates have been available around six to seven weeks after the end of the month. In response to the coronavirus pandemic, since April 2020, HMRC provide a "flash" estimate of employment within three weeks of the end of the month. From May 2020, a "flash" estimate of median earnings will also be available to the same timescale.
In addition to the survey information, the ONS also publishes aggregate information from administrative data sources in government. The two sources are benefits data relating to unemployment (Claimant Count) and employees who pay tax through the Pay As You Earn scheme (PAYE).
The Claimant Count is a measure of the number of people claiming benefits principally for the reason of being unemployed. The Claimant Count is based on a tabulation of monthly extracts from the Department for Work and Pensions administrative systems. Currently the Claimant Count is a composite of the number of people claiming Jobseeker's Allowance (JSA) and those claiming Universal Credit (UC) who are required to seek work to qualify for their benefits.
The Claimant Count does not attempt to measure unemployment, which is a concept defined by the International Labour Organization (ILO) as all those who are out of work, actively seeking work and available to start work. However, since the people claiming benefits are generally a particular subset of the unemployed, the Claimant Count can provide a useful indication of how unemployment is likely to vary between areas and over time and can provide more granular breakdowns as it has complete coverage of the specific benefit claimants.
Under UC, a broader span of claimants are required to look for work than under JSA. These claimants have the effect of increasing the Claimant Count and affecting the reliability of the Claimant Count as an economic indicator. During the transition to UC, the Claimant Count is not classed as a National Statistic. To help interpretation, the Department for Work and Pensions publishes an Alternative Claimant Count, which adjusts the Claimant Count to include these extra claimants in a consistent way since 2013, and provide a reliable indicator of the number of claimants over time.
As has widely been reported, the UC system has seen a surge in new declarations. It is important to note that some of those figures related to initial declarations submitted to the UC online portal, rather than the number of claims that had gone through all the stages to become part of the UC caseload. Not every declaration will become part of the UC caseload used within the Claimant Count. Also, those that would become part of the Claimant Count may take time to go through the UC system to become a live claim. Consequently, not all claims submitted through the online portal prior to the count date would be live at that date.
Even allowing for the final caseload being a subset of initial claims submitted and the time it will take for some of those claims to progress through the system, it is likely that the Claimant Count will show significant increases. Such rapid changes in Claimant Count levels may give challenges to the seasonal adjustment of the series. This will be reviewed as data become available.
Pay As You Earn Real Time Information
HM Revenue and Customs' (HMRC's) Pay As You Earn (PAYE) Real Time Information (RTI) system covers every employee who pays tax through a PAYE scheme. As the system covers all employees it is not subject to sampling variability and provides a comprehensive estimate of employment and earnings.
Since December 2019, the ONS and HMRC have been jointly publishing monthly estimates for employment and earnings from the PAYE RTI system, as described in the previous Business survey section.Back to table of contents
The latest expectations point to a significant decline in economic activity in the first half of this year at least, reflecting how the coronavirus (COVID-19) pandemic has led to a reduction in the demand for goods and services and the impact upon the ability of businesses to supply those products as well as many businesses ceasing operating. The UK labour market statistics provide a consistent framework to understand these impacts and we have looked to explain how we might expect this to affect estimates of employment, unemployment and earnings this year.
National statistics institutes (NSIs) will face significant practical challenges in measuring the labour market this year. We have explained the main issues that we expect to encounter and some of the steps that we are taking to help better understand and, where possible, tackle these challenges. We will continue to work with other NSIs and international organisations in looking to implement best practice in response to these challenges. However, it is clear that the compilation of labour market statistics will need close monitoring during this period as we look to ensure that we are able to capture labour market activity in the UKBack to table of contents