A trick of the light

Why is the UK Unemployment rate is LOW when jobs are being LOST?!

A multifaceted answer that might be useful here, but picking up the data, it’s a political highlight to encourage people to think there’s nothing wrong, when there is.

As always, the counter for the Brexit narrative that "unemployment is at an all time low, everything’s peachy" is simply fact.

Remember how unemployment is calculated. It's the number of people claiming benefits, divided by the number of people of working age with capacity to work.

UK net migration is at a low. With more skilled people leaving the UK. Taking them out of the population altogether and thus, out of the DENOMINATOR of that calculation. Their jobs have to be filled, but they're leaving at such a rate, that even a drop in jobs, looks like it leads to an INCREASE in employment rate. But it isn't.

For a simple example, if you have an "eligible" population of 1,000 people and 800 are employed in 800 jobs. That's an unemployment rate of 20%.

If the population is dying or retiring at a rate of 100 a week, it needs 100 people to [net] migrate in to fill those jobs. Suppose that goes to 50 and jobs are NOT impacted.

That means that 50 jobs have to be taken from the local population. Meaning you:

1. take away the 100 from the viable population AND the employed, making that ratio 700/900 (22.3% "unemployment")

2. Add the 50 from net migration to both, making it 750/950 (21.1% "unemployment")

3. But add the missing 50 from the existing employable population. Making it 800/950, leaving the true unemployment rate at 15.6%!!!

Even if the number of jobs drops by 4% say. That means 800 jobs drops to 768 and that ratio is 768/950 = 19.2%

This is what’s happening as seen in this graph. The reduction of some 90,000 EU citizens in 12 months, means more people have to be taken into employment from the local population.

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While the number of jobs hasn’t dropped by as much. Changing the unemployment rate. The seasonally adjusted vacancy rate is shown below.

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There are some industries, like healthcare, which cannot simply accept staff from the general public. They must be qualified. Meaning the NHS must fund the visa costs and applications for staff from abroad. That takes money from the Government pot.

The net result is this identifies, be process of elimination, that the number of people the employment rate is judges relative to, must be decreasing. Sure enough, this is exactly what we see!

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Note the rightmost column in the Labour Force Survey. Household population has dropped by some 90,000 on last year. Effectively reducing the pool of eligible candidates against those in employment. Making the employment rate look higher than it actually is.

Zero Hour Contracts

We can’t talk about employment and Brexit without looking at Zero Hour Contracts (ZHCs).

It’s a well know fact that after the referendum, there was an increase in people on ZHCs. 100,000 Contracts were more or less instantly filled, bringing the unemployment rate down, due to these jobs counting as employment.

The problem is that in recent months, there hasn’t been a material increase in ZHCs. Yet there was a corresponding drop in the employment rate.

Remember that the employment rate is a dependent variable of multiple independent ones. ZHCs, part-time workers, temp staff, gig economy, full time workers etc.

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Indeed, the number of ZHCs actually went down by August 2018. To 732,000.

The removal of that, means there are more people coming off ZHCs into employment. So for that, they can “thank” Brexit.

…for now.

But that’s another story.


Written by

EA, Stats, Math & Code into a fizz of a biz or two. Founder: Automedi & Axelisys. Proud Manc. Citizen of the World. I’ve been busy

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