Forty-five per cent of 24-year-olds who are not in education, employment, or training – known as ‘NEETs’ – have never had a job. Not a Saturday shift at a café, not a summer stacking shelves, not an entry-level role that teaches you what an invoice or balance sheet looks like. Alan Milburn, former Labour health secretary and now chair of the government’s own young people and work review, delivered this verdict this week with the weary authority of a doctor who knows the patient is deteriorating but cannot persuade them to change the treatment.
The latest figures from the National Institute of Economic and Social Research (NIESR) confirm what anyone with a passing familiarity with employing people will know. As they argue:
There are indications that younger workers in particular are being priced out of the market. A rise of 33 per cent in the minimum wage over the past two years has pushed up the unemployment rate for 18-24 year olds by more than two percentage points to 14 per cent – the highest in a decade.
A generation of young people who have never held a job is not an abstraction
Overall unemployment is heading for 5.4 per cent this year, its worst since 2015 (bar during the lockdowns). The cost of hiring an entry-level worker jumped 10.6 per cent last year alone owing to the rise in employer National Insurance contributions. And the government’s response? To consider delaying the next phase of wage equalisation for the minimum wage, not scrapping it. A pause, not a rethink. Rearranging the deckchairs as the bow of the ship slowly dips beneath the waterline.
This is what happens when politicians mistake price controls for pay rises. Let’s be clear about what the minimum wage actually is. It is not, in any meaningful sense, a guarantee of higher earnings. It is a government-imposed price floor on labour, identical in its economic logic to any other administered price. Set it above the market-clearing rate, and you generate a surplus of supply over demand.
In the labour market, that surplus has a name: unemployment. This is not controversial or new – as my learned colleague Dr Eamonn Butler explained in his book Forty centuries of wage and price controls, since the days of Hammurabi, price controls have caused chaos.
And yet successive governments, Conservative and Labour alike, have treated the minimum wage as though it were a magic wand that conjures prosperity from thin air, rather than a blunt instrument that prices the least experienced workers out of a job – and yes, that means young people.
Young people have already been struck with a series of lockdowns that repeatedly smashed their education and training, and the displacing effects of AI which is hammering entry-level roles. Now they will also be forced to be treated by employers as experienced workers, despite the facts being otherwise. This does not make economic, never mind logical, sense. We require market mechanisms that allow younger potential workers to move dynamically into the workforce – the minimum wage is preventing that. With the ghastly student loan scandal in the headlines, those million or so NEETs need not worry, as they don’t earn in order to pay down the rapidly germinating debt bomb.
The Adam Smith Institute has been banging this drum for years, and the evidence keeps arriving to prove the point. Neumark and Wascher’s meta-analysis of over 100 studies found that two-thirds showed minimum wage rises cause unemployment, with 85 per cent of the strongest studies finding disemployment effects. Jeffrey Clemens at UC San Diego found in 2019 that federal minimum wage hikes in the United States reduced employment among 16-30 year-olds with less than a high school education by 5.6 percentage points. This accounted for nearly half of the sustained collapse in that group’s employment rate. The Adam Smith Institute itself found that when the national living wage was introduced in 2016, there would be tens of thousands of fewer jobs created as a result. Unfortunately we were wrong – and it seems that figure is much higher.
The damage is not evenly spread. It falls hardest on the young, the low-skilled, and the most vulnerable, the precise people the minimum wage is supposed to protect. Automation accelerates as labour costs rise, and the disemployment effects grow larger over time as substituting workers for capital becomes ever cheaper. Milburn is right to warn of ‘scarring effects’: a 24-year-old who has never worked is not just unemployed. They are acquiring – or rather failing to acquire – habits, the discipline, the networks, the incremental skill-building that compounds into a lifetime on the dole. The minimum wage does not merely price young people out of today’s labour market. It locks them out of tomorrow’s, too.
So what is to be done? The government is reportedly mulling whether to apply equal minimum wage rates only to workers aged 20 and over rather than from 18, or to delay implementation altogether. These are fig leaves pretending to be fruit-bearing trees. The underlying model is broken, and no amount of tinkering around the edges will fix it.
The answer is to abolish the minimum wage and allow a free market in salaries. Let employers and workers negotiate wages that reflect actual productivity, actual local conditions, and actual market demand. A young person in Stoke-on-Trent and a young person in central Leeds do not face the same labour market. A nationally administered price floor, set at the political convenience of ministers seeking a headline, cannot serve both. What it can do, and demonstrably does, is destroy the low-wage entry-level roles that are the first rung on the ladder for millions of working-class young people.
Abolishing the minimum wage need not mean abandoning low earners. The Adam Smith Institute has long argued for a substantially higher personal tax allowance, letting workers keep more of what they earn, alongside a negative income tax that guarantees a minimum income floor without warping the price of labour. These tools raise living standards without destroying the jobs that make living standards possible.
The NIESR has handed the government a diagnosis. The Bank of England’s Catherine Mann has handed it another. Alan Milburn has handed it a third. A generation of young people who have never held a job is not an abstraction. It is a policy failure, hiding in plain sight, dressed up in the language of fairness.
The minimum wage was never a pay rise. It was always a price control. It is time we treated it as one and scrapped it accordingly.
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