By Johnny Runge
Economics pervades everything we do, and it plays a key role in most aspects of our lives. A basic understanding of economics and economic issues helps us make decisions at home and at work, to perform our democratic duty in holding elected representatives and other policy makers to account, and to evaluate government performance. Nevertheless, research on public understanding of economics and economic statistics is surprisingly sparse. Few studies go beyond the headline survey finding that the public lack a basic understanding of economic issues, and few initiatives are undertaken to improve communication of economics to the public.
Addressing this situation directly, the ESCoE have produced a new report detailing new research examining public understanding of economics and economic statistics. We have explored how British people understand the economy, how they view different economic concepts such as unemployment, inflation and GDP, and how they judge and evaluate the main economic indicators reported in the media. We organised 12 focus groups in October 2019 across Manchester, Birmingham and London, with 130 people, recruited by a market research company to include a variety of participants. We also ran a nationally representative YouGov survey with 1,665 respondents in February 2020, to further test some of our findings.
So, what did we find? In some instances where the economy is seen as important for people’s personal finances, such as interest rates due to their impact on mortgages, there is a reasonable level of public understanding. However, public understanding of broader economic concepts is generally very weak, leading to questions about people’s ability to understand economic news stories and to evaluate the economic element of government performance. Many feel economics is confusing and complicated, and regret they are unable to understand it.
Our research indicates that the communication of economic issues and statistics to the public needs improving. Our report will be followed by an engagement exercise involving the broader economics community, ranging from the Office for National Statistics (ONS), to politicians, government departments, researchers, third sector organisations and the media. Our hope is that this report inspires progress and deepens the commitment to communicating economic issues to the public, stimulating new approaches to economics communication that are more accessible, engaging and relevant.
Our report contains many specific findings for each of the economic concepts explored, including unemployment, inflation, GDP, trade, deficits and debt, and interest rates. Given ESCoE’s focus on economic measurement, it is worth highlighting the report’s findings which relate to public perceptions of unemployment and inflation measurement.
We found that the average person has limited knowledge and sometimes misconceptions about how basic economic indicators, such as unemployment and inflation figures, are collected and calculated. This goes to the heart of why people sometimes lack confidence in economic statistics. Taking unemployment as an example, current unemployment figures (3.8% at the time of the research and 4.8% at the time of writing) often seem very low, as perceived by the average person, especially when contrasted with their everyday personal experiences of hardship and difficult job prospects among family and friends.
This led focus group participants to immediately question how employed and unemployed people are categorised in official data. Participants queried whether “low-quality jobs”, often perceived in terms of hours, pay and job conditions, should be considered as ‘employment’ in official statistics. People recognise that official unemployment rate statistics are presented as binary (either you are classified as “unemployed” or you are not) but they are keenly aware that the labour market is anything but binary. Economic activity exists in many forms, including many “low-quality jobs” such as involuntary zero-hours contracts, part-time jobs, fixed-term, short-hours jobs, and so on. Similarly, economic inactivity exists in many forms, including stay-at-home parents, disabled people unable to work, retired people, students and people who may choose not to work.
Our research demonstrated that people lack knowledge about how official unemployment figures categorise different people, and this partly leads to their view that official unemployment figures seem too low. Most prominently, our survey findings suggest that people assume the unemployment rate is calculated as a proportion of all working age adults (similar to the employment rate) rather than only as a proportion of those who are classified as economically active. Focus group participants expressed surprise about the term ‘economically inactive’ and typically said they “had never heard of it”, and many were astonished that such a large group was not part of the calculation.
The research revealed a similar story about the inflation rate. Just as with the unemployment rate, there was a common perception that the official figures (1.5% at the time of the research and 0.7% at the time of writing) seemed low compared to their everyday experiences of shopping and paying bills. There can be many reasons for this, for instance a propensity to notice and remember larger price increases in everyday consumption, such as on specific items in the supermarket or on specific bills compared to more steady prices and price reductions; as well as a tendency to overestimate the frequency of incremental increases and how this translates into percentage growth.
People often questioned whether the official measurement and figures were done in a way that reflected someone else’s inflation (“their inflation”) rather than their own (“my inflation”). With a lack of knowledge about how inflation was calculated, they often suspected that the calculations placed too much emphasis on luxury items and failed to take into account large expenditure items such as council tax and housing costs that were relevant to their own consumption. Others assumed it was based on a very simple basket of everyday goods, such as bread, milk or alcohol. And those few who, to some extent, understood that the “basket of goods” contained a weighted selection of goods and services representative of a typical household, often felt that their own consumption would not closely match this average household.
Statistical agencies may want to consider how effectively they are communicating their key figures.
On unemployment, the key question relates to how to communicate the concept of economic inactivity as part of finding the most appropriate way to communicate a rounded picture of the labour market to the public.
Regardless, this process needs to be conducted carefully. Focus group participants were often keenly aware that any data and statistics can be used to promote a particular view. The following quote from a participant in a focus group in Manchester sums up the scale of the problem: “You can make statistics say anything you want, can’t you really? If they don’t give you the right answer, broaden the sample to tell a different story.”
This research shows that official economic data, such as unemployment and inflation figures, are subject to the same public scrutiny as any other data, especially when people have misperceptions about how it is collected and measured, and who produces and publishes them. Older generations in our focus groups sometimes still vividly remembered changes to unemployment data in the past and cited it as basis for their scepticism about the accuracy of the figures today, and some people did the same with the inflation rate, citing shortcomings of the RPI (Retail Price Index) as a measure of inflation.
Statistical experts should be at the forefront of any effort to improve communication, as they are independent of potential political influence. Ideally such effort is backed by a deliberative process in which the public are engaged at various points, in thinking about these issues and making recommendations, through focus groups and workshops.
The full report can be accessed here.
Johnny Runge is an ESCoE Research Associate and a Senior Researcher at NIESR.
ESCoE blogs are published to further debate. Any views expressed are solely those of the author(s) and so cannot be taken to represent those of the ESCoE, its partner institutions or the Office for National Statistics.