The cost of employing young people has risen at three times the rate of inflation since the Labour party came to power, contributing to a slump in job vacancies, according to new analysis by the Centre for Policy Studies (CPS) think-tank. The report indicates that higher taxes and sharp increases in the minimum wage have made hiring a worker aged 21 and over 20 percent more expensive, while the cost for 18-to-20-year-olds has increased by 31 percent over the same period, compared to an inflation rate of approximately 10 percent.
The CPS analysis, which examined employer costs between 2024 and projected figures for 2027, suggests that these increased expenses could deter businesses from hiring younger workers. "The Government argues that higher wages are good for employees," the CPS stated. "But it is an obvious truth that making it more expensive to hire people, especially young people, means fewer will be hired – hence the recent falls in job vacancies and rise in unemployment."
Over the specified period, the cost of employing a full-time worker on the national living wage (for those aged 21 and over) is projected to rise by £4,462, or 20 percent. This increase accounts for both higher wage rates and a rise in employer national insurance contributions. For 18-to-20-year-olds, who are not liable for employer National Insurance contributions, the cost of employment is set to increase by £4,859, or 31 percent, due to a more rapid increase in their minimum wage rate.
Critics argue that this rapid increase in youth minimum wage rates makes employers less likely to hire younger, less experienced workers, particularly at a time when nearly a million young people are classified as not in education, employment, or training (NEETs). Earlier this year, the government announced a pause in the convergence of youth and adult pay rates, with both set to increase by 3.9 percent from April. This decision followed a recommendation from the Low Pay Commission, which acknowledged a slowdown in demand for young workers and increased risks associated with ambitious minimum wage rises.
Official figures cited in the analysis show that job vacancies have fallen below 700,000 for the first time since 2014 (excluding the pandemic period), representing a decrease of 162,000 since Labour took office. Concurrently, unemployment has risen by 276,000. The CPS concluded that "one of the themes of the Labour Government is the increased costs it has put on business," noting that the cost of minimum wage labour is a significant factor, and that current budget trends continue this pattern, negatively impacting both businesses and many younger workers.
Daniel Herring, head of fiscal and economic policy at the CPS, acknowledged the move to slow the rise in the youth minimum wage but stated that "this Labour government has continued to increase pressure on businesses during an incredibly difficult period for them."