What if all Government Data is wrong?

fullsizeoutput_1efa.jpegThis is short update in advance of next weeks full blog.  I am trying to stick to one longer piece a month, with some shorter blogs in between

Last year I wrote about the way that Unemployment Statistics are collected:

https://jon-chadwick.com/2017/03/18/unemployments-rising-in-the-chigley-end-of-town/

In particular I highlighted problems with the way the Labour Force Survey captures data about the UK Labour Market.  In a world of zero hours contracts, part time working and high levels of self employment the LFS is no longer an accurate tool to measure unemployment, which could be a lot higher than we think it is.   This was based on my own experiences as part of the LFS survey cohort.

One of the big questions that troubles economists looking at the British economy has been the decline in productivity.  Despite apparently everyone working harder we are much less productive than neighbouring nations. The French have a shorter working week, longer holidays, longer lunches, and more wine and yet still manage to have higher productivity than us Brits.   

Partly this could be the function of changes in consumption.  Barrista coffee is more labour intensive than Mellow Birds, my Distillery makes less Gin per employee than Gordons – but that is the point – people want more human input into the products and services they buy, and the more human input the more they value it.  We want to spend time with our GP, and our hairdresser.

https://jon-chadwick.com/2017/04/17/productivity-is-rubbish-inefficiency-rules-why-craft-gin-is-better-than-united-airlines/

We are moving from an economy which is highly resource intensive to one that is more service oriented. This isn’t a bad thing – our resource consumption has fallen dramatically over the last few years, which is great for the environment.

This explains part of the output gap, but  I just don’t think we are drinking that much expensive coffee, artisanal cheese and craft gin. 

If the unemployment data is wrong then the productivity gap might be smaller than we think.  But what if the UK output data was rubbish too?

For the last few years we have been part of the Small Business Output cohort for the Manufacturing Output Survey.   While in theory all small businesses are registered with Central and Local Government in reality the state, locally and nationally knows less than it should about the small business manufacturing sector.  Lots of small businesses are reluctant to send their details to Government bodies, and the state doesn’t have the resources to track them down.   

When Durham County Council set up their Manufacturing and Engineering Taskforce one of the task forces first tasks was to find out what manufacturing businesses actually operated in County Durham.  One of the businesses they found built wind tunnels.  Hard to imagine how no-one had spotted that before.

I’m not great at filling in forms, and only actually filled the form in at all because it has lots of scary warnings on.   Eventually I got fed up and this week I rang the ONS and told them we weren’t filling their forms in any more.   

It turns out that a business should only be in the survey sample for 12-15months, after which they are meant to refresh the sample to make sure it is up to date and randomised.    We had been in the cohort for over 3 years, because they don’t have the resources to keep the sample up to date.  Instead of using a proper randomised sample they have just been collecting the same date from the same businesses.   LFS has the same problem – the sample size they use is much smaller than they really need to be statistically valid.  

Which means that all of the output data we have been looking at to measure productivity is as rubbish as the unemployment data.  It’s not hard to imagine a scenario where new, and highly productive manufacturing industries enter the market are under represented in the survey, while older established businesses with less productive technologies are over represented. 

Looking at LFS the Unemployment data has been wrong since 1997, although in the early years the mistake was small.   After the credit crunch the data got worse, and from 2010 onwards has become increasingly divorced from reality.   

It is harder to tell how long the Manufacturing Output Survey has been rubbish, or how far out it is.

But if Ministers no longer care whether what they say in Parliament is true or not then it no longer matters whether the data being collected is right either.  If the Minister doesn’t care about the truth then why should the Senior Civil Servants who brief them care if they are giving the right data?   If the SCS don’t care if the data is right why should the less well paid Civil Servants who manage performance care either?

It’s not just our news that’s fake.  Our facts are too.

https://www.ons.gov.uk/economy/economicoutputandproductivity/productivitymeasures/bulletins/internationalcomparisonsofproductivityfinalestimates/2015

https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/labourproductivity/bulletins/labourproductivity/jantomar2017

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