Britain’s rising minimum wage is contributing to a surprising trend: increasing unemployment among young people. New data reveals the unemployment rate for 18 to 24-year-olds climbed to 13.7% in the three months to November, the highest level since late 2020, and up from 10.2% three years prior. This figure now exceeds the European average for the first time since records began in 2000, prompting concern among Bank of England policymakers.
Catherine Mann, a rate-setter at the Bank of England, attributes the increase in youth unemployment to “disproportionately big increases in the minimum wage for that age group.” Speaking to the Sunday Telegraph, Mann cautioned against interpreting the rise as a signal of broader economic weakness, arguing that the minimum wage increases are the primary driver. “I think we have to be very careful in the storyline about youth unemployment being the canary in the coal mine for a deeper deterioration in the labour market,” she said.
Over the past three years, minimum pay for 21 to 22-year-olds has risen by 33%, aligning it with the national living wage of £12.71 per hour for older workers. The rate for 18 to 20-year-olds has seen an even more substantial increase of 46%, reaching £10 an hour, with a further rise to £10.85 scheduled for April. The government has stated its intention to eventually equalize the minimum wage for 18-20 year olds with the adult rate.
The broader UK unemployment rate has also increased, rising from 3.9% to 5.1% over the same three-year period. This comes as sectors heavily reliant on younger workers, such as retail and hospitality, grapple with increased employer National Insurance contributions alongside the rising living wage.
Mann emphasized that firms have limited options when facing increased labor costs. “Firms can raise prices, firms can lower wages, firms can improve productivity, and firms can choose not to hire,” she explained. “For some of those workers, you can’t cut wages. That’s what the national living wage is about.”
The situation highlights a complex trade-off. While higher minimum wages benefit those already employed, they can simultaneously discourage employers from hiring less experienced workers. Paul Johnson echoed this sentiment, noting that the data suggests the UK has shifted from a country with relatively low youth unemployment to one more in line with the European norm. “We have moved from a very low, relatively speaking, youth unemployment country to one which is much more like the European average,” he told GB News. “That is not a direction we want to be going in.”
Historically, lower wage bands for younger workers were designed to incentivize employers to take on less experienced staff. The current trend raises questions about the effectiveness of this approach, particularly as Labour has pledged to abolish age-based wage bands, further closing the gap between younger and older workers’ pay.
The Bank of England recently maintained interest rates at 3.75%, while simultaneously warning that unemployment could peak at 5.3% this year as economic growth slows. GDP forecasts have been revised downwards to 0.9% from a previous estimate of 1.2%.
Johnson further explained that employers may be hesitant to hire younger workers when faced with comparable wage costs. “If you’re an employer and you have to pay effectively the same to a 17-year-old as you would to a 25-year-old, it’s hard to see, in general, why you’d choose that 17-year-old who’s got no experience of any kind if you’re forced to pay them the same.”
A government spokesperson acknowledged the rise in youth unemployment since 2022 and highlighted the £1.5 billion in funding allocated to work, training, and apprenticeship programs. However, the data suggests that these initiatives may not be fully offsetting the impact of rising labor costs on youth employment.
