What next for young workers after rise in minimum wage levels?
In November 2022’s autumn statement, the government announced increases to the National Minimum Wage (NMW) and National Living Wage (NLW) which came into effect from 1 April this year.
Given the impacts of the Covid-19 pandemic on the younger working population, many of which continue today, how much will these changes address the issues caused by Covid-19?
As the most recent entrants into the labour market, younger workers have always been most at risk from job insecurity, but the pandemic made it worse. Several studies have shown that young workers were worse hit by the pandemic than the older generation. The youth labour market shrank as sectors such as hospitality, retail and leisure struggled through the lockdowns.
The employment rate fell most heavily among 16-24 year olds, the group most likely to be furloughed. According to the HMRC, during the first three months of lockdown half of eligible 16-24-year-olds were placed on the scheme, with far-reaching consequences.
In simple terms, it led to a lack of earnings and financial independence among the younger population with increased levels of anxiety and depression. Less easy to measure, but just as damaging, has been the mass disruption of lives put on hold, dreams and aspirations seemingly cancelled or postponed and apathy creeping in.
The risk of unemployment has led to an acceptance, even willingness, to take ‘worse work’ or a view that some areas, such as performance and the arts, are no longer viable career options.
Perhaps the most damaging and lasting consequence, though, has been the emerging gap in skills, experience and qualifications. A recent Prince’s Trust survey found that half of the young people questioned worried that the three-year hiatus had left them with a permanent shortfall in the knowledge and skills needed to secure jobs in the future.
A timely boost – or papering over the cracks?
From the start of April, the NLW for those aged 23 and over has increased to £10.42 per hour, a 9.7% increase. For those aged between 16 and 20 and serving apprenticeships, the rate has increased by 9.7% and for those aged 21-22 the increase is larger at 10.9%, giving a new minimum hourly rate of £10.18. It is estimated that two million young workers will receive a pay rise because of these measures.
A 10% pay rise is clearly sending a positive message. This is the largest single increase to the NLW since its introduction and is higher than pay awards across the wider economy, which in the three months ending February 2023 were averaging 6%, according to XpertHR.
However, any progress also needs to be measured against the backdrop of three disproportionately negative years for young workers’ pay and the effect of inflation.
Since it was launched in 2015, the NLW has always out-risen inflation. In fact, if it had risen in line with the Consumer Prices Index, by April 2022 it would only have reached £7.81. But with these last 12 months of rising prices, even the 9.7% uplift leaves it, in real terms, below the April 2021 rate when adjusted for inflation.
Next steps to help younger workers
The government has set a target for the NLW to reach two-thirds of median hourly pay by October 2024.
In terms of the number of young people eligible for it, the biggest recent change came in April 2021 when the age bracket was lowered from 25 to 23. That top age bracket will lower by another two years to 21, in April 2024.
This means that from next year there will only be three distinct pay rates for the NLW – 21 years or older, 18-20 years and under 18s and apprentices – and more young people will be able to access the higher rate.
These developments are positive for younger workers, but are only the start. On both a national and company-led level, they must be matched by initiatives and support structures to create opportunity and enable progression.
Strategy beyond the NLW
In many cases, the NLW is only a career starting point. With job movements more commonplace for younger workers as a way to increase their earnings, thinking about pay strategy beyond the minimum is key to retaining younger employees.
Organisations need to be clear about opportunities available and steps needed to progress. Young people will stay longer if clear pay progression follows increases in competency and experience. This retention can also save the additional costs of recruitment and training replacements.
At the same time, declining start rates on apprenticeships need to be reversed to give young workers opportunities to gain qualifications and experience. Work experience needs to enable young people to try out a broader spectrum of roles and sectors and develop a professional network.
The new National Minimum Wage gives younger workers a little more money in their pocket. Now more needs to be done to grow opportunity, aspiration and confidence for the next generation of the workforce.
In partnership with Innecto Reward Consulting
We have more than 20 years' experience in getting employers' pay and reward working harder for them.