Labour urged to rethink plans to hike the minimum wage as youth unemployment soars

Labour was yesterday urged to re-think minimum wage rises amid growing evidence that they are contributing to soaring youth unemployment.

It came as separate figures showed the private sector continuing to cut jobs in what is now the most prolonged cull for 16 years.

The jobless rate already stands at 5.2 per cent, a five-year peak. It means unemployment is now even higher than in Italy, where figures yesterday showed it has fallen to 5.1 per cent.

Bosses and experts say Labour’s national insurance hikes and wage policies are to blame for rising joblessness – with young people the worst hit.

Ministers have committed to increasing the minimum wage paid to 18 to 20-year-olds to the same level as that received by adults but that is making employers reluctant to take a chance on new starters.

Analysis yesterday by the Institute for Fiscal Studies (IFS) showed the costs of taking on workers in this age group had risen by nearly 20 per cent thanks to Labour’s employment policies. 

That will double to over 40 per cent if it presses ahead with its plan to make the pay rates equal.

‘Given the Government’s concern and given what we’ve already seen in terms of falling rates of employment for young people, this is something that we definitely need to watch out for,’ said Nick Ridpath, research economist at the think-tank.

It comes after youth unemployment recently hit an 11-year high of 16 per cent and the number of 16 to 24-year-olds classed as not in employment education or training (NEET) climbed to nearly a million.

The IFS report showed that younger age groups had experienced much sharper drops in employment than the rest of the population over the past couple of years.

Mr Ridpath said the crisis threatened to create ‘scarring’ – long-term damage thought to be caused by being out of the workforce.

Tom Waters, associate director at the IFS, said: ‘All else equal, you want to be less aggressive on the minimum wage when the labour market is weak.

‘So if things are looking difficult in the labour market for younger workers that might be a time when you want to be a little bit more cautious on the minimum wage, given concerns about NEETs and so on.’

Firms with large numbers of younger workers are struggling because the national minimum wage, which applies to 18 to 20-year-olds, is climbing sharply. At the start of last year it was £8.60 but after an increase in April and another hike next month it will be £10.85.

The national living wage, which applies to workers aged 21 and over, will be £12.71, having been £11.44 at the start of last year – a smaller rate of increase.

Fears over wider joblessness are also growing.

The IFS analysis came a day after the Office for Budget Responsibility (OBR), Britain’s Budget watchdog, predicted that unemployment will rise to 5.3 per cent this year and also warned young people would be the worst hit.

It came as a business survey yesterday showed private sector firms cut jobs for the seventeenth month in a row last month – the most prolonged spell of cuts since 2010.

The purchasing managers’ index (PMI) report, published by financial firm S&P Global, showed that an overall ‘solid’ expansion in business activity last month had failed to boost jobs.

‘Employment remained a weak spot, with job losses recorded in both the manufacturing and service sectors,’ it said.