Labor is facing calls to reconsider its manifesto promise to scrap lower minimum wages for young workers, amid warnings that almost a million 16 to 24-year-olds are currently out of education, employment or training.
A new report from the Resolution Foundation shows that the number of so-called “Neets” has risen by 195,000 in the past two years to 940,000 – the highest level in more than a decade and on track to exceed 1 million for the first time since 2012.
The think tank argues that eliminating the youth minimum wage could risk pushing young people out of entry-level positions at a time when employers are already reducing hiring due to rising labor costs.
Labour’s manifesto pledged to end what it described as “discriminatory” lower pay scales for workers under 21. The process began in April when Chancellor Rachel Reeves implemented a 16.3% rise in the minimum wage for 18- to 20-year-olds to £10 an hour – significantly more than the 6.7% rise for workers aged 21 and over, who now pay £12.21.
But the Resolution Foundation warns that further convergence could lead companies to scale back hiring or favor older candidates with more experience, especially during times of economic uncertainty.
“Any increases in rates would need to be considered with particular caution in the current economic environment to avoid excluding young people from entering the labor market,” the report said.
The report also highlights a shift in the reasons why young people become NEET. Illness and disability have become increasingly important factors, with over 25% of young Neets now inactive due to illness – more than double the figure in 2005.
Once largely due to caring responsibilities, particularly among young women, unemployment is now the leading cause of young people disengaging from work or study for both genders.
Business groups have warned that recent policy changes have increased hiring costs, citing Reeves’ £25 billion increase in employers’ national insurance contributions in last year’s autumn budget, rising minimum wages and expanded job protections.
They argue that further mandatory pay increases for young workers could reduce training and internship opportunities at a time when employers are becoming more selective.
In response to growing concerns about the impact on the labor market, Reeves announced a new “Youth Guarantee” at the Labor Party conference in Liverpool recently, promising every young person access to education, skills training or employment support.
The government is also piloting “game-changing” employment programs in eight English mayoral regions to give young people better access to work and training.
Louise Murphy, senior economist at the Resolution Foundation, said stronger interventions are urgently needed:
“Otherwise we risk a cohort of young people slipping into a life with a lower standard of living.”
A government spokesman defended its policy, saying: “By strengthening the national livelihood and the minimum wage for 3 million workers of all ages, we aim to support business growth through lower staff turnover and higher productivity.”
As the exodus of young people increases and employers warn of cost pressures, Labor faces a policy crossroads: proceed with full wage equalization and risk job losses – or rethink its approach to ensure wage growth is matched by expanded entry opportunities.
The balance this creates could shape the youth labor market for a generation.
