- Employing an 18 to 20-year-old is expected to cost businesses 31 per cent more between 2024 and 2027.
- The additional annual cost is estimated at £4,859, compared with £4,462 for workers aged 21 and above.
- The Low Pay Commission has recommended slower increases for younger workers amid concerns about youth employment.
Hiring young workers in the UK is becoming more expensive for businesses, with the annual cost of employing an 18 to 20-year-old projected to increase by 31 per cent between 2024 and 2027. New analysis by the Centre for Policy Studies (CPS) estimates that employers will spend an additional £4,859 a year on a full-time worker in this age group.
The increase is nearly three times the rate of inflation over the same period, estimated at around 10 per cent. The figures include changes to minimum wage rates and employer taxes, adding to concerns about recruitment costs at a time when youth unemployment and the availability of entry-level jobs remain under scrutiny.
For workers aged 21 and above, the annual cost of employment is expected to rise by £4,462, or 20 per cent, over the same three-year period. The findings come as businesses face pressure from higher wages, National Insurance contributions and other operating expenses.
Why is hiring young workers becoming more expensive?
The increase reflects a combination of higher minimum wage rates and changes to employer National Insurance contributions.
The CPS estimates that employing a full-time worker aged 18 to 20 will cost a business £20,511 annually by 2027, compared with £15,652 in 2024. For workers aged 21 and above, the corresponding cost is expected to increase from £22,438 to £26,900.
The difference is partly linked to Labour's efforts to narrow the gap between the minimum wage for younger workers and the National Living Wage for adults. Successive increases have pushed up the youth wage floor more quickly, although the government has now slowed the pace of alignment.
The impact is particularly relevant for businesses in sectors such as retail, hospitality and food services, where younger workers often fill entry-level positions.
The CPS argued that making it more expensive to hire young people could discourage recruitment. Its analysis also linked rising employment costs to falling vacancies and increasing unemployment, although these figures alone do not establish that minimum wage increases caused the changes.
Could higher minimum wages make it harder for young people to find jobs?
The debate centres on a difficult trade-off between improving wages and protecting access to employment.
Higher minimum wages can help younger workers meet living costs, but businesses argue that rapidly rising recruitment expenses could make them more cautious about taking on inexperienced employees.
The concern comes as the UK continues to deal with a youth employment problem, with nearly one million young people classified as not in education, employment or training (NEETs).
The Low Pay Commission has also acknowledged the pressure in the youth labour market. In its latest recommendations, it said demand for younger workers had slowed, with fewer vacancies particularly in youth-friendly sectors such as retail and hospitality.
However, the commission said there was no robust evidence that recent increases in youth minimum wage rates had reduced employment. It warned that this did not mean future increases were without risks, particularly if demand for younger workers continued to weaken.
The government has therefore opted for a more cautious approach to bringing the two wage rates closer together.
From April 2027, the National Living Wage for workers aged 21 and above will increase by 3.9 per cent to £13.21 an hour. The rate for 18 to 20-year-olds will rise by the same percentage to £11.27, following the Low Pay Commission's recommendations.
What are businesses and unions saying?
Employer groups have called for greater consideration of the financial pressures businesses face when minimum wage increases are decided.
The Confederation of British Industry has urged the Low Pay Commission to consider employers' ability to absorb higher wage bills, while unions have argued that younger workers should not be paid less when they face similar living expenses.
CPS head of economic policy Daniel Herring reportedly said John Healey deserved "some credit" for taking business costs into account when deciding the latest increase.
However, he also pointed to the cumulative impact of successive wage increases, arguing that businesses were facing an increasingly difficult operating environment.
The debate is particularly important for smaller employers, which may have less room to absorb higher payroll expenses without adjusting recruitment, working hours or prices.
For young workers, the question is whether higher hourly pay will translate into better financial security if employers become more selective about recruitment.
The latest figures do not establish that higher minimum wages will necessarily lead to fewer jobs. But they highlight the challenge facing policymakers: improving pay for younger workers while ensuring businesses continue to offer opportunities to enter the workforce.
