Younger and lower-paid workers hit hardest by rising labour costs, figures show

Younger and entry-level workers are being squeezed the hardest by higher employment costs slowing the rate that firms are hiring, new analysis shows.

Some UK businesses have seen the cost of employing workers rise on the back of recent policy measures, including tax and minimum wage increases and reforms to employment rights, the National Institute of Economic and Social Research (Niesr) said in its latest economic outlook.

These factors have raised the marginal cost of hiring by around 7%, in real terms, for an entry level position, according to its findings.

Niesr warned that sectors most exposed to cost increases were experiencing a bigger impact, pointing to data showing a link between exposure to the national minimum wage and rising unemployment.

This includes typically lower-paid industries such as hotels, hospitality and food chains, which also have a greater concentration of younger and early-career workers.

Its analysis found that, rather than cutting existing jobs, many firms have chosen to slow the rate that they hire staff.

Therefore younger workers and those “at the margins of the labour market” are being disproportionately squeezed, the think tank said.

Official figures at the end of last year showed that the unemployment rate rose to its highest level since early 2021 over the three months to September.

The Office for National Statistics (ONS) said that young people especially were struggling in the tougher hiring climate, with an 85,000 increase in those unemployed aged between 18 to 24 in the three months to October – the biggest jump since November 2022.

The number of young people not in employment, education or training – so-called Neets – has been rising since 2021, and hit the highest level since 2014.

In its report, Niesr said it was “hard to escape the conclusion that the rising cost of labour has deterred full-time job creation, particularly for younger workers”.

Lord Frost, director general of the Institute of Economic Affairs, said the findings “laid bare the costs of the Government’s national insurance and minimum wage hikes, and Employment Rights Act: a spike in the cost of hiring entry-level workers, meaning fewer jobs and opportunities for young people”.