Office for National Statistics

Government Buildings, Cardiff Rd, Newport NP10 8XG

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The Labour Cost Survey (LCS) is conducted every four years in the Member States of the European Union (EU) and provides comprehensive and detailed information comparable at EU level on the level, structure and development of labour costs in the different sectors of economic activity. The LCS covers businesses with at least 10 employees and all economic activities defined in sections B to N, and P to S, of the Statistical classification of economic activities in the European Communities (NACE Rev 2). The transmission of data covering small enterprises (below 10 employees) and enterprises belonging to NACE Rev. 2 section O is optional.

classification of economic activities (NACE)

The whole economy includes NACE all sections A to U.

Inline to Commission Regulation (EC) No 1737/2005 of 21 October 2005 amending Regulation (EC) No 1726/1999 as regards the definition and transmission of information on labour costs.

enterprise and employees - depending on the data source

All enterprises in the UK.

The UK as a whole.

2016

Not applicable.

In the UK, rather than creating a specific survey to fulfil its purpose, the LCS is compiled from a variety of existing sources. The main surveys that contribute to the LCS are:

• Annual Survey of Hours and Earnings (ASHE) – For information on salaries, wages, paid hours and social contributions
• Business Register and Employment Survey (BRES) – For information on employment
• Labour Force Survey (LFS) – For information on worked hours

The main source of information for LCS, ASHE, samples directly from a list of employees and not businesses. Consequently, variable E2, local units sampled in the survey is not applicable. As requested, figures E1 and E2 represent the total number of local units in the survey universe – i.e. the UK as a whole.

every 4 years

In the UK, rather than creating a specific survey to fulfil its purpose, the LCS is compiled from a variety of existing sources.

All of the surveys that have been utilised in the production of the LCS are subject to intensive scrutiny as part of standard ONS validation processes. For example, both  BRES and ASHE are subject to numerous tests to identify errors and outliers that may have been captured or coded incorrectly. All efforts are made to ensure that errors are corrected by following up suspicious values with the data providers.

In the UK, rather than creating a specific survey to fulfil its purpose, the LCS is compiled from a variety of existing sources. The main surveys that contribute to the LCS are:

• Annual Survey of Hours and Earnings (ASHE) – For information on salaries, wages, paid hours and social contributions
• Business Register and Employment Survey (BRES) – For information on employment
• Labour Force Survey (LFS) – For information on worked hours

not applicable

This quality report is intended to assist users in understanding the UK LCS data.

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see below - 5.1, 5.2 and 5.3 for more details

The main users of the various labour cost statistics in the UK are:

• Department for Business, Innovation and Skills
• Low Pat Commission
• HM Treasury
• Department for Work and Pensions
• Bank of England
• Devolved administrations in Scotland, Northern Ireland and Wales
• HM Revenue and Customs
• Office for National Statistics

Other users include academic researchers, media, employers’ associations and trade unions, legal professionals and citizen users.

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See in detail following subconcepts.

see below.

Since the LCS is compiled from a range of different sources, it is not possible to calculate the variance of the estimates produced.  However, the coefficients of variation from ASHE give a good indication of the quality of the pay and hours variables used in the LCS.

See 6.2.1.

Table 1. Mean estimates and coefficients of variation for gross weekly pay by NACE Rev.2 section, 2016.

* Whole economy includes NACE all sections A to U. Estimates are not available for sections B-S, excluding O.

Table 2. Mean estimates and coefficients of variation for weekly paid hours worked By NACE Rev. 2 section, 2016.

* Whole economy includes NACE all sections A to U. Estimates are not available for sections B-S, excluding O.

see below

The main survey used in the construction of the LCS in the UK, ASHE, is subject to non-sampling error.  This is due, in part, to differences between the reference and the study populations. The sampling frame for ASHE is the Pay-As-You-Earn (PAYE) system. This is a database of employee jobs which is maintained by HM Revenue and Customs, and does not cover the full population of employees in the UK. There are a relatively small number of employees whose earnings are too low to be included in the PAYE system, and this can lead to under coverage in the ASHE results.  However, research undertaken in 2004 and 2005 indicated that including businesses whose employees’ earnings were below the PAYE threshold did not lead to significant changes in the results.

see 6.3.1

not applicable

All of the surveys that have been utilised in the production of the LCS are subject to intensive scrutiny as part of standard ONS validation processes. For example, both BRES and ASHE are subject to numerous tests to identify errors and outliers that may have been captured or coded incorrectly. All efforts are made to ensure that errors are corrected by following up suspicious values with the data providers.

There are some measurement issues relating to specific LCS variables. These are itemised below:

• There are no UK data sources for the variables D.11112, D.1112 and D.122. Values for these variables were calculated as follows:

- D.11112. The ratio of D.11112 to D.11111 from the 2004 LCS was applied to the D.11111 figures for 2016. The UK average was applied throughout.
- D.1112. The ratio of D.1112 to D.1111 from the 2004 LCS was applied to the D1111 figures for 2016. The UK average was applied throughout.
- D.122. The ratio of D.122 to D.121 from the 2004 LCS was applied to the D121 figures for 2016. The UK average was applied throughout.

• For the variables B11, B12 and B13 (hours actually worked for full-time employees, part-time employees and apprentices) data is not available by enterprise size-band or region within the UK . Figures for table B (sizeband) and table C (region) have been created by applying the ratio of hours worked to hours paid from Table A to the hours paid figures for Tables B and C. This has been done separately for full-time and part-time employees at NACE division level (e.g.X05).

• Data for D.1113 (payments for days not worked) were taken from ASHE. As ASHE collects annual leave days, excluding public and bank holidays, 8 days were added to each employee’s ASHE figure to cover the standard public holiday entitlement in the UK. Some employees are known to receive further ‘privilege’ days however, and no estimation for these has been made.

• Data for D.1211 (statutory social security contributions) are not collected overtly via ASHE. These have been calculated for each employee in the dataset according to the UK National Insurance rates for employers, as set out by the responsible government department (HM Revenue and Customs). Some components of employees’ remuneration are subject to different rates of National Insurance, but as ASHE collects the total value of wages, salaries and benefits it is not possible to apply these rates where appropriate. The resulting error is likely to be minimal as the relevant components are not common or substantial components of wages, salaries and benefits.

• For D.1212 (Collectively agreed, contractual and voluntary social-security contributions) data are not available for sickness insurance schemes, unemployment schemes or other non-pension schemes. These are judged to be negligible. It is also not possible to account for tax exemptions that may apply in some circumstances.

• Data for D.2 (Vocational training costs) are available via the National Employer Skills Survey (NESS). The survey was not carried out in 2016, so figures from 2015 have been used. These figures were deflated to give estimates for 2016 based on the growth of ASHE gross weekly earnings from 2015 to 2016. Estimates at NACE level were applied to the sectors for LCS across Tables A, B and C.

Each survey that contributes to the construction of the LCS is subject to a certain amount of non-response error. Although it is not possible to describe each of these in detail, non-response error for ASHE is described below:

The response rate for ASHE in 2016, based on the final dataset of valid data, was approximately 82%. The dataset contained information about 178 thousand jobs. ASHE data are subject to bias arising from differential response rates. To resolve this, ASHE is weighted to take into account these varying response rates by calibrating the number of employees falling into certain predefined categories to the number of employees falling into the same categories obtained from the LFS. The effect of this weighting is that the estimates increase. This is because high earners have a relatively poor response rate to ASHE and are allocated larger weights, on average, than lower earners.

Non-response also arises from certain types of ‘exemptions’ i.e. those employees that change their job between sample selection and the survey reference date, or because the PAYE system fails to reflect job changes at the time that the sample was collected. To address this, ASHE includes a second despatch of questionnaires to employers with employees who have moved jobs or are new starters.

Finally, ASHE is also subject to partial or item non-response. Where this occurs, ASHE uses a form of imputation whereby records with similar characteristics are sought to act as a ‘donor’ for the record with missing variables. Analysis has shown that the imputation process preserves the true values well, and that there is no significant difference between the distributions obtained using the true and the imputed values.

There are no response issues with the sampling frame for ASHE (the PAYE system) because this is effectively a census of all eligible employee jobs.

see 6.3.3.

see 6.3.3.

see 6.3.2

see 6.3.2

A number of assumptions have been made when compiling the LCS.

The LCS industry, size-class and regional breakdowns require the ASHE data to be disaggregated into many small cells. Some of these cells contain no employees, and for others, the coverage is deemed unsuitable for use in producing official statistics. To ensure quality throughout, estimates are given for the lowest available disaggregation in which there are at least 25 people in the ASHE sample. In practice, this means that; where a sample cell has 25 people or more, the estimate generated by ASHE has been used; where a sample cell has fewer than 25 people, the next available aggregate containing at least 25 people, using the Nace Rev.2 hierarchy, was used. This process was used in the calculation of the following LCS variables:

C.11
C.12
D.11111
D.1113
D.1114
D.1211
D.1212

Not applicable.

Not applicable.

Not applicable.

Not applicable.

2016 UK LCS data was published by Eurostat in August. This was approximately 15 months after the reference period, and consequently does not reflect the labour costs at the time of publication.

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As the LCS in the UK is a composite of various existing surveys (rather than a dedicated survey for the purposes of the LCS), data were available according to the usual timescales for these ONS surveys.

The 2016 UK LCS data were sent to Eurostat on 29/06/2018.

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The UK estimates for LCS 2016 conform, for most variables, to the regulations, and should therefore be broadly comparable with estimates from other Member States.

Exceptions to this are; the variables D.11112, D.1112 and D.122, which were calculated based on ratios from the 2004 UK LCS; D.2, which was not available at regional or size-class breakdowns; Individually, these variables may not be comparable with those submitted by other Member States.

In the context of the LCS as a whole, however, the variables D.11112, D.1112, D.122 and D.2 constitute only a minor proportion of total labour costs. At the UK whole economy level, the total of these variables is approximately 6% of the total labour cost figure.

not applicable

In broad terms, the construction of LCS in 2016 is the same or similar to that of previous years.

Employment estimates were constructed on a similar basis to 2012 with information being extracted from BRES but the 2016 breakdowns (NACE sections, regions and size-class) are based on enterprise instead of local unit information. This may result in noticeable changes in levels of employment and variables where employment is used in the calculation between 2012 and 2016.

For non-wage labour costs the LCS uses information obtained from ASHE, as opposed to 2000 and 1996 where the Inland Revenue’s Survey of Personal Income was used as the source of ‘payments in kind’ (D.1114).

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Since the UK LCS is a composite measure which combines a range of data sources in a bespoke method, estimates do not correspond perfectly to those from other sources related to labour costs and employment.

Table 3. Selected figures for comparison with 2016 LCS estimates. Figures based on NACE sections B-S (excluding O) unless stated.

* Figure based on whole economy

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see 8.3

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ONS may consider whether to publish results from the 2016 LCS, independently from the Eurostat publication, in due course.

This quality report is intended to assist users in understanding the UK LCS data

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None.