The UK underemployment rate rose as high as 18%

At a time of great uncertainty and not a little worry for many we should be able to turn to official statistics for at least a benchmark. Sadly the Covid-19 pandemic has found them to be wanting in many respects. Let me illustrate this with an example from the BBC.

The UK unemployment rate has risen to its highest level for two years, official figures show.

The unemployment rate grew to 4.1% in the three months to July, compared with 3.9% previously.

There are all sorts of problems with this right now which essentially come from the definition.

Unemployment measures people without a job who have been actively seeking work within the last four weeks and are available to start work within the next two weeks.

During this period many will not bother to look for work as for example some think they still have a job.

Last month, we reported on a group of employees who, because of the impact of the coronavirus (COVID-19) pandemic, have reported that they are temporarily away from work and not getting paid. Similarly, there is a group of self-employed people who are temporarily away from work but not eligible for the Self-Employment Income Support Scheme (SEISS). Although these people consider themselves to have a job and therefore are consistent with the ILO definition of employment, their lack of income means that they may soon need to look for work unless they are able to return to their job.

A sort of job illusion for some with the problem being is how many? I would like all of them to return to their jobs but also know they will not. The concept though can be widened if we add in the furlough scheme which was designed to save jobs but as a by product has driven a bus through the employment and unemployment data.

The number of people who are estimated to be temporarily away from work (including furloughed workers) has fallen, but it was still more than 5 million in July 2020, with over 2.5 million of these being away for three months or more. There were also around 250,000 people away from work because of the pandemic and receiving no pay in July 2020.

So we are unsure about 5 million workers which dwarfs this.

Estimates for May to July 2020 show an estimated 1.40 million people were unemployed, 104,000 more than a year earlier and 62,000 more than the previous quarter.

So we see that the number is simply way too low which means that all of the estimates below are at best misleading and in the case of the employment rate outright laughable.

the estimated employment rate for all people was 76.5%; this is 0.4 percentage points up on the year and 0.1 percentage points up on the quarter…….the estimated UK unemployment rate for all people was 4.1%; this is 0.3 percentage points higher than a year earlier and 0.2 percentage points higher than the previous quarter…….the estimated economic inactivity rate for all people was 20.2%, a joint record low; this is down by 0.6 percentage points on the year and down by 0.3 percentage points on the quarter

The economic inactivity measure is perhaps the worst because the worst level of inactivity in my lifetime is being recorded as a record low. This embarrasses the Office for National Statistics as we are in “tractor production is rising” territory.

What can we use?

A measure which is working pretty well seems to be this.

Between February to April 2020 and May to July 2020, total actual weekly hours worked in the UK decreased by 93.9 million to 866.0 million hours. Average actual weekly hours fell by 2.8 hours on the quarter to 26.3 hours.

This shows a much larger change than that suggested by the official unemployment measure. We can in fact learn more by looking further back.

Over the year, total actual weekly hours worked in the UK decreased by 183.8 million to 866.0 million hours in the three months to July 2020. Over the same period, average actual weekly hours fell by 5.8 hours to 26.3 hours.

On this measure we see that if we put this into the employment numbers we would see a fall approaching 6 million. So in effect the underemployment rate was in fact heading for 18%. If we simply assume that half of it was unemployment we have an unemployment rate of 11% which in economic terms I am sure we did. Now the economy is more open perhaps it is 7-8%.

The 8% unemployment rate does get some support from this.

Between July 2020 and August 2020, the Claimant Count increased by 73,700 (2.8%) to 2.7 million (Figure 10). Since March 2020, the Claimant Count has increased by 120.8% or 1.5 million.

It is hard not to have a wry smile as I type that because back in the mid 1980s Jim Hacker in Yes Minister told us nobody believes the unemployment figures and those are the one he was referring to. There are other references to that sort of thing as well.

Hacker: The school leaving age was raised to 16 so that they could learn more, and they’re learning less!

Sir Humphrey: We didn’t raise it to enable them to learn more! We raised it to keep teenagers off the job market and hold down the unemployment figures.

Pay

The opening salvo is less than reassuring.

The rate of decline in employee pay growth slowed in July 2020 following strong falls in the previous three months;

We find that the pattern is what we would be expecting.

Growth in average total pay (including bonuses) among employees was negative 1.0% in May to July, with annual growth in bonus payments at negative 21.4%; however, regular pay (excluding bonuses) was positive at 0.2%.

It has been the public sector which has stopped the numbers being even worse.

Between May to July 2019 and May to July 2020, average pay growth varied by industry sector . The public sector saw the highest estimated growth, at 4.5% for regular pay. Negative growth was seen in the construction sector, estimated at negative 7.5%, the wholesaling, retailing, hotels and restaurants sector, estimated at negative 3.2%, and the manufacturing sector, estimated at negative 1.7%.

However there was an improvement for many in July.

 For the construction, manufacturing, and the wholesaling, retailing, hotels and restaurants sectors, the July 2020 estimate of annual growth shows sign of improvement when compared with May to July 2020.

If we look at the construction sector then weekly wages rose from £573 in June to £620 in July so there was quite a pick-up of which £10 was bonuses.

Switching to an estimate of real pay we are told this.

In real terms, total pay growth for May to July was negative 1.8% (that is, nominal total pay grew more slowly than inflation); regular pay growth was negative 0.7%.

Although those numbers rely on you believing the inflation numbers which I do not.

Comment

We have found that the official ILO ( International Labor Organisation) methodology to have failed us in this pandemic. Even worse no effort has been made to fix something we have been noting ( in this instance looking at Italy) since the third of June.

and unemployment sharply fell

If you actually believe unemployment fell in Italy in April I not only have a bridge to sell you I may as well sell the river as well.

Looking at the data suggests an underemployment rate of the order of 20% in the UK giving us an actual unemployment rate perhaps double the recorded figure.

If we switch to pay and wages we need to remind ourselves of those who are not counted. For example the self-employed and companies with less than ten employees. Such omissions did not bother the Dr.Martin Weale review back in the day but perhaps one of the ONS Fellows could help like er Dr.Martin Weale. We are back to reliving Yes Minister again.

Meanwhile according to Financial News some are resorting to desperate measures to get GDP rising again.

‘It could get really messy’: Finance workers’ cocaine use spikes in lockdown

16 thoughts on “The UK underemployment rate rose as high as 18%

  1. As we are about to go into a 2nd (unnecessary) lockdown, presumably because the first didn’t do enough damage, finding a job atm is likely to less successful than finding the crock of gold at the end of the rainbow.
    Who is going to be taking on staff before March? (Apart from HMRC!)

    • “Many people are still sceptical that admissions are still very low. Zooming out a bit, here’s why I’m worried. It took the moving ave 35 days to fall from 119 to 50, and just 11 to increase back from 52 to 118. Another 2 weeks will take us back to June 9th. ”

      • ‘The understandable fear is that the rise in cases will soon translate into a rise in deaths similar to that in March.  We should not be complacent, of course.  But there are two things that we also know that suggest something else is happening.  The first is that the rise in cases has not been accompanied by a rise in deaths.  In fact, UK deaths have followed the same curve as the rest of northern Europe (including Sweden, which was initially criticised for not locking down): There is also a somewhat morbid factor at play here.  According to the Office for National Statistics:
        “In the 2018 to 2019 winter period (December to March), there were an estimated 23,200 [Excess Winter Deaths] in England and Wales. This was substantially lower than the 49,410 EWD observed in the 2017 to 2018 winter and lower than all recent years since 2013 to 2014 when there were 17,280 EWD.”
        In effect, a large number of older and vulnerable people had dodged a bullet in the year prior to the arrival of SARS-CoV-2; and so there were more potential victims for Covid-19 at the beginning of 2020.  The large number of deaths resulting from decanting infected people into care homes no doubt inflated the figures in March and April.  And the excess deaths then mean that there are fewer vulnerable potential victims left to succumb to the disease today.  Moreover, many of the remaining elderly and vulnerable people will have adjusted their behaviour in a way that minimises the risk of infection.
        Some of the fall in deaths may also be due to clinicians better understanding the disease and developing more effective treatments.  However, this seems unlikely to have had a big impact.  This is because the second thing we also know is that the number of hospitalisations has not increased with the number of cases either:’
        https://consciousnessofsheep.co.uk/2020/09/11/and-next-time/?fbclid=IwAR3LdnMFZ6JGgcCaVVa_1GHlXpOQyuKUnCp563q3668oUjsjnghPQ22jM0Y

        • Quite a rise in hospital admissions in France. There’s a lag between cases rising and hospital admission – lets hope it doesn’t happen here.

          • Pav,

            do we know who is being hospitalized ? makes a difference in fighting this virus

            thanks

            Forbin

          • In Bolton there is now about 200 cases per day which is 4 times the national average and in the red zone, cases rising.

            According to Chanel 4 there are still problems with testing and positive cases likely a lot higher.

            Patients on ventilator now starting to rise in the UK.

            Over 3,000 positive case in the UK now the GOV target less than 1,000.

            Recent data suggests virus is getting out of control.

          • Yes 97 and 381 returned home over the same period. Frightening! Deaths yesterday were 40 out of a daily average of 1600. Its the end of the world I tell you.
            Deaths ‘with covid-19 in the UK are at present ( week 35) 1% of total deaths.
            If there were no testing and the politicians and media would shut up, no-one would know anything out of the ordinary was happening, because it isn’t.

        • thanks for this

          it’s facinating that they’re catching up with what anyone could have figured from their own stats, here’s my little contribution which I pulished here a while back.

          Remember folks they even showed a dip in mortality rates on the news …….. they seemed puzzled by it but glossed over – oh well

          so the last week I looked at was Jul 3rd – 91% who died were 65 and above and that was 6.13 % of all deaths that week.

          I calculated from ONS data that 62K excess deaths over 2019 and 42k excess against 2018 for the period week 10 to 24 . There have been below deaths for the comparison years since.

          Masks seemed to have made very little impact , if any .

          As for deaths that could have been prevented if we went Sweden route – well that will I suspect be the subject to future lawsuits.

          Forbin

          .

  2. ‘It could get really messy’: Finance workers’ cocaine use spikes in lockdown!

    That’s worrying; they have a nose for trouble.

  3. Hello Shaun,

    Unemployement could be a thing of the past if HMG follow the Forbin Plan.

    Make all unemployed government employess on UBI ( seeking a new employer of course)

    Job’s a good ‘un !

  4. Shaun,

    “If we look at the construction sector then weekly wages rose from £573 in June to £620 in July so there was quite a pick-up of which £10 was bonuses.”

    Being in the construction sector before I retired most self employed were earning circa £600 over 10 years ago.

    I suspect if you rounded up 100 self employed trades people they would tell you earnings left well behind and they were better off 10 to 20 years ago.

    In fact I can recall in the 70s and 80s they were good times for tradesmen who went self employed.

    Part of the reason for the “real pay” decline was polish workers migrating to work in the UK and the construction employers getting a better handle on terms of pay for work done, which is too complex to go into on your blog.

    • Hi Peter

      We would need to know the split of workers to say. I am sure I have mentioned before my father was a plastering sub contractor and some decades ago his best workers could earn £700 or more a week, which was good money outright back then. But labourers and the like earned a lot less.

      On the other side he had workers who could earn £500+ a week and via the bookies and the pub would be looking for a sub on Monday.

  5. Great blog as usual, Shaun.
    You quote the ONS: “In real terms, total pay growth for May to July was negative 1.8% (that is, nominal total pay grew more slowly than inflation)”. I didn’t match this growth rate when I tried. I got a 2.0% decline for May to July for total pay using the CPIH as a deflator, which is still probably within the bounds of rounding error, a decline of 2.2% using RPIJ as the deflator (assuming the most recent published estimate for the formula effect, 0.6 percentage points, remains valid) and a decline of 1.9% using the CPI as deflator. While the differences aren’t great, it shows that using either of the macroeconomic consumer price series, CPI or CPIH as deflator, still gives a rosier picture of real wage decline than using RPIJ, although that could change if there is a really big housing correction.
    As you know, the US Bureau of Labor Statistics publishes a Table A-15, called “Alternative measures of labor underutilization”. For August, its lowest measure, U-1, is at 5.1% and its highest, U-6, at 14.2%, while the official measure stands at 8.4%. The ONS should probably calculate a similar publishing a similar table itself. There is also a case to be made for changing the standard for the official measures. It would be easy for the ONS to calculate an unemployment rate that treats discouraged workers as unemployed, as the US does. The US measure, U-4, shows the unemployment rate in August as 8.7%, not such a huge difference from the official rate, but not negligible either. To my mind, the official unemployment rate should include discouraged workers, and elderly people should be considered discouraged workers if that is how they report themselves.

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