The impact of minimum wage on young workers in the UK has become a growing concern. While the government aims to improve worker welfare with recent changes to the National Living Wage (NLW) and employment taxes, these measures have had unintended consequences for individuals aged 16 to 24.

Rising National Living Wage and Employment Taxes

In April 2025, the UK government raised the NLW by 6.7%, bringing it to £12.21 per hour. This increase aims to ensure that wages keep pace with the cost of living and reduce income inequality. However, alongside this wage hike, employers’ National Insurance Contributions (NICs) were increased from 13.8% to 15%, and the earnings threshold for NICs was lowered from £9,100 to £5,000. These measures were implemented to boost public revenues and support essential services. 

Impact on Employment Among Young Workers

Small and medium-sized enterprises (SMEs), which often employ a significant number of young workers, have been particularly affected by these policy changes. Since October 2024, employment within SMEs has contracted by an average of 0.3% per month. Notably, in February 2025, employment among younger workers experienced a sharp decline of 1.8%. This trend suggests that increased labor costs are leading SMEs to reduce their workforce, disproportionately impacting younger employees. 

Challenges in the Job Market

The reduction in employment opportunities has made the job market increasingly competitive for young individuals. The number of young people classified as NEETs (Not in Education, Employment, or Training) reached an 11-year high in 2024. This situation not only affects their immediate financial stability but also has long-term implications for their career development and earning potential. 

Financial Strain Due to Increased Taxation

The lowering of the NICs threshold means that a larger portion of young workers’ income is now subject to taxation. Consequently, despite higher gross wages due to the NLW increase, the net take-home pay for many young workers has not seen a proportional rise. This scenario places additional financial strain on a demographic already facing challenges such as student debt and high living costs.

Mental Health and Social Implications

The financial and employment uncertainties have also contributed to a decline in mental health among young people. An increasing number are reporting poor mental health and a reliance on benefits, indicating a broader social issue that extends beyond economics. 

Conclusion

While the intentions behind raising the NLW and increasing employment taxes are to improve worker welfare and fund public services, these measures have inadvertently placed young workers in a precarious position. Addressing this issue requires a balanced approach that considers the sustainability of businesses, particularly SMEs, and the need to provide young individuals with stable employment opportunities and financial security.