Bank of England’s Mann says minimum wage rise linked to youth employment
An increase in minimum pay for younger workers has led to a rise in youth unemployment, according to Bank of England rate-setter Catherine Mann, as new data shows Britain’s jobless rate for young people has climbed above the European average.
The unemployment rate for 18 to 24-year-olds stood at 13.7 per cent in the three months to November, up from 10.2 per cent three years earlier and the highest level since late 2020.
Broader OECD figures show the rate for 16 to 24-year-olds has risen to around 15 per cent, overtaking the EU average for the first time since records began in 2000.
Over the same three-year period, overall UK unemployment has increased from 3.9 per cent to 5.1 per cent.
In an interview with the Sunday Telegraph, Mann said the rise in youth unemployment reflected “disproportionately big increases in the minimum wage for that age group”, rather than signalling a more general collapse in the labour market.
“I think we have to be very careful in the storyline about youth unemployment being the canary in the coal mine for a deeper deterioration in the labour market,” she said.
“The accumulation over three years of the rise in the National Living Wage for that group has been manifested in unemployment for that category of workers. Very unfortunate, but it is true. It is a fact.”
Minimum pay for 21 to 22-year-olds has risen by 33 per cent over the past three years, bringing it into line with the £12.71 hourly national living wage paid to older workers.
The rate for 18 to 20-year-olds has increased by 46 per cent to £10 an hour and is set to rise again to £10.85 in April.
The government has said it ultimately wants to align the 18–20 rate fully with the adult rate.
The rise in youth joblessness has come as retail and hospitality, sectors that typically employ a large share of younger workers, face higher employer National Insurance contributions and increases in the living wage.
The Bank of England (BoE) recently held interest rates at 3.75 per cent, warning that unemployment could peak at 5.3 per cent this year as growth slows.
GDP is forecast to expand by 0.9 per cent, down from an earlier estimate of 1.2 per cent.
Employers weigh up hiring costs
Paul Johnson said the data suggested the UK had shifted from being a relatively low youth unemployment country to one much closer to the European norm.
“We have moved from a very low, relatively speaking, youth unemployment country to one which is much more like the European average,” he told GB News. “That is not a direction we want to be going in.”
Johnson said higher minimum wages benefit those already in work, but can affect hiring decisions at the margin.
“For lots of young people who are in work and their wage goes up and they keep their job, this is great news,” he said. “But if you’re outside, if you don’t have that job at the moment, or if your hours are cut as a result of it, then you’re a loser.”
He added also said: “If you’re an employer and you have to pay effectively the same to a 17-year-old as you would to a 25-year-old, it’s hard to see, in general, why you’d choose that 17-year-old who’s got no experience of any kind if you’re forced to pay them the same.”
Lower youth wage bands were originally designed to encourage employers to take on less experienced staff. Labour has pledged to abolish what it describes as ‘discriminatory age bands’, further narrowing the gap between younger and older workers’ pay.
A government spokesperson said youth unemployment had been rising since 2022 and pointed to £1.5bn in funding for work, training and apprenticeships.
Mann, who has voted against the Bank’s last three rate cuts over inflation concerns, said while she understood the objectives behind minimum wage policy, firms ultimately had limited ways to respond to higher costs.
“Firms can raise prices, firms can lower wages, firms can improve productivity, and firms can choose not to hire,” she said. “For some of those workers, you can’t cut wages. That’s what the national living wage is about.”