The National Living Wage for employees aged 21 and over has gone up by 77p to £12.21 per hour, while the rate for workers aged between 18 and 20 has risen from £8.60 to £10 per hour.
Full-time workers could see an extra £1,400 in their pay packet per year following the changes, which the Government said will “put more money back into the pockets of working people”.
The move was announced in the Autumn Budget by Rachel Reeves in a bid to “kick-start growth” and boost spending on local high streets.
Angela Rayner, deputy Prime Minister, said: “This pay rise for over three million of the lowest paid workers was a priority for this Government and means we’re already giving hard-working people more money in their pockets and a proper wage increase worth over twice the rate of inflation.
“These changes are part of our Plan for Change – to raise living standards for people across the [country], including apprentices and young people, giving them more job security and the huge pay boost they deserve too.”
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While the increases are the biggest for young workers aged under 21 since the minimum wage was introduced in 1999 (16%), the knock-on effect could cause employees to be worse off, according to the IFS.
With the National Insurance contributions (NICs) for employers also rising to 15% from 13.8%, the IFS has warned young people might be worse off, as firms may be incentivised to hire more experienced staff.
‘May reduce job opportunities for young adults’
Its research into the combined impact of minimum wage and tax increases noted: “Whilst most young adults aged 18-20 will not be directly affected by the NICs increase – the vast majority are not subject to employer NICs – the industries that they tend to work in are those that will see the biggest rise in employer costs.
“Taken together, these changes may reduce job opportunities for young adults against a backdrop of falling employment among this group and a lack of reliable data to monitor labour market impacts.”
Indeed, the hospitality industry employs almost a third (28%) of all 18-20-year-olds, but it “could be more attractive” for employers to look elsewhere when hiring for a position in a bar, club or restaurant.
The research institute said: “More broadly, the changes taking effect this week incentivise firms to make greater use of higher-skilled (higher-paid) workers, self-employed subcontractors and labour-saving technologies such as tablet ordering or self-checkouts – all of which could limit employment opportunities for young people.”
It added: “Firms in hospitality and wholesale and retail, which often provide the first rung of the career ladder, will see the biggest rise in employment costs.
“Some firms may be able to absorb the cost increase through lower profits, pass it on to consumers in the form of higher prices or pass it on to their higher-paid staff in the form of lower wages (those not bound by the minimum wage). However, other firms may have to reduce hiring, lay off staff or close down altogether.
“This means that the rise in employer costs generated by the NICs increase could reduce job opportunities for young adults, even though it does not apply to them directly.”
