Cost of employing young people up by three times the rate of inflation under Labour - causing jobs slump

The cost of employing young people has 'skyrocketed' at three times the rate of inflation since Labour came to power causing a jobs slump, new analysis shows.

Higher taxes and sharp increases in the minimum wage mean that taking on a worker aged 21 and over costs 20 per cent more. For 18-to-20 year-olds, the cost is up by 31 per cent. Over the same period, inflation adds up to just 10 per cent. 

The analysis by the Centre for Policy Studies (CPS) think-tank underlines how Labour's policies have battered hiring and added to a youth jobs crisis.

'The Government argues that higher wages are good for employees,' the CPS said.

'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.'

Its analysis looked at the rise in employer costs between 2024 when Labour came to power and 2027, when minimum wage rates are set to rise again.

A sharp rise in the national minimum wage has raised the cost of employing young people

Over that period, the cost of employing a full-time worker on the national living wage – for those aged 21 and over – will have risen by £4,462, or 20 per cent.

That includes a higher wage rate as well as a sharp increase in employer national insurance contributions after a raid by Rachel Reeves.

And for those on the national minimum wage, which applies to 18-20 year-olds, the cost of employment will have risen by £4,859, or 31 per cent.

Employees aged under 21 are not liable for employer NI contributions.

But their minimum wage rate has been going up much more quickly than it has for older workers, as part of a controversial pledge to bring the two rates into line.

Critics say the rapid increase makes it less likely that employers will take a chance on younger workers at a time when nearly a million are classed as not in education, employment or training (NEETs).

Last week, the government said it would pause the move, meaning that both pay rates will go up by 3.9 per cent from April next year.

It followed a recommendation from the independent Low Pay Commission, acknowledging that 'demand for young workers has slowed and the risks associated with ambitious rises [in the national minimum wage] have increased'.

Latest official figures show that vacancies have slumped below 700,000 for the first time since 2014 – excluding the pandemic. They are down by 162,000 since Labour came to power. Meanwhile, unemployment has risen by 276,000.

The CPS said: 'One of the themes of the Labour Government is the increased costs it has put on business.

'One of the largest costs it has increased is the cost of minimum wage labour. This year's Budget carries on that trend.

'This is bad for business and many younger workers as well.'

Daniel Herring, the think-tank's head of fiscal and economic policy, said: 'John Healey deserves some credit for slowing the rise in the youth minimum wage.

'However, this Labour government has continued to increase pressure on businesses during an incredibly difficult period for them.'