Bank of England Official Connects Minimum Wage Increases to Youth Employment Challenges
Bank of England rate-setter Catherine Mann has stated that substantial rises in the minimum wage for younger workers are directly linked to increasing youth unemployment in the United Kingdom. This declaration comes as new data reveals Britain's jobless rate for young people has climbed above the European average for the first time in over two decades.
Alarming Youth Unemployment Statistics
The unemployment rate for individuals aged 18 to 24 reached 13.7 percent during the three months leading to November, marking a significant increase from 10.2 percent recorded three years earlier. This represents the highest level observed since late 2020. Broader OECD figures indicate the rate for 16 to 24-year-olds has risen to approximately 15 percent, surpassing the European Union average for the initial time since records commenced in 2000.
Over this identical three-year timeframe, overall UK unemployment has escalated from 3.9 percent to 5.1 percent, illustrating broader labor market pressures. In an interview with the Sunday Telegraph, Mann emphasized that the surge in youth unemployment specifically reflects "disproportionately big increases in the minimum wage for that age group," rather than indicating a more widespread collapse across the labor market.
Minimum Wage Increases and Economic Realities
Minimum pay for workers aged 21 to 22 has experienced a dramatic 33 percent increase over the past three years, bringing it into alignment with the £12.71 hourly national living wage paid to older employees. Simultaneously, the rate for 18 to 20-year-olds has surged by 46 percent to £10 per hour, with plans to rise again to £10.85 in April. The government has expressed its ultimate objective to fully align the 18–20 rate with the adult rate.
Mann, who has voted against the Bank's last three interest rate reductions due to inflation concerns, acknowledged understanding the policy objectives behind minimum wage increases. However, she noted that businesses ultimately possess limited options when responding to higher labor costs. "Firms can raise prices, firms can lower wages, firms can improve productivity, and firms can choose not to hire," Mann explained. "For some of those workers, you can't cut wages. That's what the national living wage is about."
Sector-Specific Pressures and Hiring Decisions
The rise in youth joblessness coincides with retail and hospitality sectors—industries that traditionally employ substantial proportions of younger workers—facing increased employer National Insurance contributions alongside living wage increases. Paul Johnson commented that the data suggests the UK has transitioned 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," Johnson told GB News. "That is not a direction we want to be going in." Johnson noted that while higher minimum wages benefit those already employed, they can influence hiring decisions at the margin, potentially making younger, less experienced workers less attractive to employers when wage parity exists.
Policy Responses and Future Outlook
The government has pointed to £1.5 billion in funding allocated for work, training, and apprenticeships in response to youth unemployment trends that have been rising since 2022. Meanwhile, the Labour Party has pledged to abolish what it describes as 'discriminatory age bands,' further narrowing the pay gap between younger and older workers.
The Bank of England recently maintained interest rates at 3.75 percent, cautioning that unemployment could peak at 5.3 percent this year as economic growth slows. Gross domestic product is forecast to expand by 0.9 percent, down from an earlier estimate of 1.2 percent. Mann emphasized the need for careful interpretation of youth unemployment data, stating, "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 added, "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." This analysis highlights the complex trade-offs between wage policy objectives and employment outcomes for younger workers in the current economic climate.
