Minimum wage frozen for young workers

In March 2012, the British government announced the adult rate of the National Minimum Wage would rise by 1.8% from October. However, it has taken the unprecedented step of freezing rates for workers aged 16 to 20. The decision is said to be aimed at encouraging struggling companies to take on youngsters at a time when youth unemployment is rising to alarming levels. The move has been welcomed by employers’ organisations, but trade unions have described it as exploitative.

Adult rate increase

The independent Low Pay Commission (LPC), which advises the government on the statutory National Minimum Wage (NMW), draws up an annual report containing recommendations for increases. If the government accepts the recommended increases, as it usually does, the NMW is uprated accordingly from 1 October each year.

The LPC issued its 2012 report (5.36Mb PDF) in February. For the full adult NMW rate, which applies from the age of 21, the LPC recommended a 1.8% increase, from GBP 6.08 (€7.57 as of 18 May, 2012) to GBP 6.19 (€7.72) an hour. This follows increases of 2.5% in 2011 (UK1104039I) and 2.2% in 2010.

The LPC says that its recommended increase takes into account the current difficult economic circumstances (the expected pace of economic growth in 2012 and 2013 is uncertain and is likely to be low) which means that ‘caution is essential’. The recommended adult rate ‘is one which we expect to maintain the relative position of the lowest paid and which we believe business, including small businesses, will be able to afford’.

The Office for National Statistics (ONS) showed inflation running at 3.5% in March 2012, as measured by the Consumer Prices Index. Average weekly earnings rose by 1.1% in the three months to February 2012, compared with the same period in 2011.

Freeze recommended for young workers

There are separate, lower NMW rates for:

  • workers aged 18–20 (the ‘development’ rate);
  • workers aged 16 and 17;
  • apprentices under 19, and those aged 19 and over in the first 12 months of their apprenticeship.

The LPC recommended that the development rate and the rate for those aged 16 and 17 should be frozen at their current rates of GBP 4.98 (€6.21) and GBP 3.68 (€4.59) an hour respectively. Since the NMW was introduced in 1999 (UK9904196F), the development rate has until now been increased every year. The rate for workers aged 16 and 17 was introduced in 2004 and, after an initial one-year pause, has been increased every year since. In 2011, the development rate was increased by only 1.2%, and the 16–17-year-old rate by 1.1%, compared with 2.5% for the adult rate.

The government had asked the LPC to consider in its 2012 recommendations the young people’s labour market. The LPC concluded that this position had continued to worsen (the unemployment rate was 22.2% among those aged 16–24 in February 2012), and that the employment of young people is more sensitive than that of adults to the economic cycle. It therefore ‘reluctantly’ recommended freezing the rates for young people, as this ‘may increase their relative attractiveness to employers’.

The LPC did, however, recommend a 1.9% increase in the apprentice rate from GBP 2.60 to GBP 2.65 an hour, citing a rise in new apprenticeships in 2010/2011.

Recommendations accepted

On 19 March, the government accepted the LPC recommendations on NMW rates to apply from October 2012. The Business Secretary, Vince Cable, said that the recommendations ‘strike the right balance between pay and jobs’.

He commented:

In these tough times freezing the youth rates has been a very hard decision, but raising the youth rates would have been of little value to young people if it meant it was harder for them to get a job in the long run.

Social partner reactions

The employer organisation the Confederation of British Industry (CBI) welcomed the 2012 NMW rates, which would ‘come as a relief to the many hard-pressed firms’ and ‘preserve jobs and support the fragile recovery’. Its Chief Policy Director, Katja Hall, said that the LPC had ‘listened to businesses’ on the youth rates. She added:

With youth unemployment at its highest level for a generation, we must take great care not to price young people out of a job. Freezing the minimum wage will help reduce one of the barriers to employers deciding whether or not to take on a young person.

The Trades Union Congress (TUC) welcomed the LPC’s ‘rejection of calls to freeze the adult rate’. However it criticised the freeze in rates for young workers. General Secretary Brendan Barber said:

It is wrong to deny young people an increase this year, as there is no evidence that the minimum wage has had an adverse impact on jobs. The reason why firms have not been hiring enough new workers is because they lack confidence in this government’s ability to set the UK on course for a sound economic recovery. There is now a real danger that young people will view minimum wage work as exploitative.

Mark Carley, IRRU/SPIRE Associates

Useful? Interesting? Tell us what you think. Hide comments

Eurofound welcomes feedback and updates on this regulation

Add new comment