This week will see significant
increases to both minimum wages and employer National Insurance
contributions (NICs) take effect. The minimum wage for 18–20 year
olds will go up by 16% today – 13% adjusted for inflation, the
biggest rise for this group since the minimum wage was
introduced. This comes on top of a 12% real increase last
year.
Whilst under-21s will not be directly
affected by the NICs increase on Saturday, firms in the
hospitality sector, which employs 28% of 18–20 year olds, will
see their labour costs go up by 3.8% in real terms (7.7% in
nominal terms). The hospitality sector has already seen a 2.1%
fall in employment and a 41% fall in vacancies since the start of
2023.
These changes take place against a
backdrop of a cooling labour market and a fall in youth
employment. Around 80,000 18–20 year olds who are paid their
age-specific minimum wage will benefit from the boost to their
pay packets, but others may struggle to find a job in a tougher
environment. This could make it harder for the government to
deliver their Youth Guarantee and potentially lead to long-term
effects on people's career
trajectories.
Sam Ray-Chaudhuri, a Research
Economist at IFS and an author of this briefing,
says:
“This month's dramatic increase in the
minimum wage for 18-20 year olds will bring a significant boost
to the pay packets of young people in work, but risks reducing
opportunities for those about to enter the labour market. We know
that spells of unemployment early on in people's careers can have
long-lasting effects on their career trajectories. Given existing
worries about how young people have fared over recent years, it
will be important to proceed cautiously and closely monitor the
effects of these policies on this group, to avoid young people
being left behind.”
ENDS
Combined impact of minimum wage
and tax increases may reduce opportunities for young
people is an IFS briefing by
Sam Ray-Chaudhuri and Xiaowei Xu.
You can read the
briefing on the IFS website here
