Tuesday, April 22, 2008

Can We Trust Economic Statistics?

A reader asked a question about official inflation statistics. Basically, he articulated a widely held belief that the Government's official method of inflation failed to report the true level of inflation in the UK. There are a number of explanations why people may feel 'actual inflation' is much higher than 'official inflation'. Some of this represents the way inflation is calculated. Other reasons reflect the psychology of people giving more weight to bad news rather than good news on inflation. See: The Real Rate of Inflation in the UK

Unemployment Statistics.

In the UK, there is also a discrepancy amongst different calculations of unemployment. In recent years the government have made it more difficult to claim unemployment benefits, so the official 'claimant count method suggests much lower unemployment than other measures. However, there are also additional problems with measuring unemployment. In particular there is an issue of disguised unemployment - people doing short term / temporary work. See: True level of unemployment

In this essay on France vs UK Economy. I came across a study which noted that although French unemployment was higher than US unemployment; the % of the Labour force in employment was the same. This highlights the difficulty of comparing economic statistics between different countries. It also feels that there are so many different ways to use statistics that you can more or less find some statistic to make up your beliefs. Therefore, when dealing with economic statistics we should always be wary and understand why they may be inaccurate.

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