The latest analysis from the National Institute of Economic and Social Research (Niesr) has highlighted alarming trends in the UK job market, particularly affecting younger and lower-paid workers. With recent policy changes leading to increased hiring costs, entry-level positions are facing a real-term wage squeeze of around 7%. This situation is forcing businesses to reconsider their hiring strategies, with a slowdown in recruitment becoming evident.
Rising Costs and Hiring Slowdown
Niesr’s economic outlook indicates that several factors, including recent tax hikes, minimum wage increases, and reforms in employment rights, have significantly raised the marginal cost of hiring. Industries most impacted by these changes include hospitality, food services, and other lower-paid sectors, where a high concentration of younger and early-career employees is found.
The think tank warned that the upward pressure on costs has led many companies to curtail their hiring rates rather than making cuts to their existing workforce. Consequently, younger workers and those on the fringes of the job market are facing increased difficulties in securing employment.
Youth Unemployment on the Rise
Recent statistics from the Office for National Statistics (ONS) underscore these challenges, revealing that the unemployment rate has surged to levels not seen since early 2021. Particularly concerning is the 85,000 increase in unemployment among those aged 18 to 24 during the three months leading to October—the most significant rise since November 2022. Additionally, the number of young people not engaged in employment, education, or training (Neets) has reached its highest point since 2014.
These figures paint a stark picture of the current job landscape, with Niesr concluding that the rising cost of labour has become a deterrent to full-time job creation, especially for younger individuals seeking to enter the workforce.
Expert Insights
Commenting on the findings, Lord Frost, director general of the Institute of Economic Affairs, stated that the analysis exposes the adverse effects of government policies, including the national insurance and minimum wage increases, as well as the Employment Rights Act. He emphasised that these measures have led to a spike in the cost of hiring entry-level workers, ultimately resulting in fewer job opportunities for the youth.
The ramifications of such policies extend beyond immediate employment statistics. They reflect a broader economic climate in which young people are struggling to establish their careers and gain financial independence.
Why it Matters
The implications of rising labour costs on youth employment are profound, not just for individuals but for the economy as a whole. As companies grapple with increased hiring expenses, they may hesitate to invest in the next generation of workers. This could lead to a cycle of unemployment and underemployment among young people, hampering economic growth and innovation in the long run. Addressing these challenges is crucial for fostering a robust, inclusive job market that supports the aspirations of the youth and, by extension, the future of the economy.
