Younger workers are bearing the cost of the impending rise in the minimum wage and higher employment taxes, as data shows employment is shrinking fastest in the UK among those aged 16-24.
Data tracking 105,000 employees at more than 1,500 small and medium sized companies showed a 0.4 per cent contraction in overall employment levels in February — reversing the 0.2 per cent gain made at the start of the year, according to Employment Hero, a HR services business.
Employment in SMEs has now fallen by an average of 0.3 per cent a month since October — when the government announced it was increasing national insurance contributions on employers and introducing a higher national living wage from April 1.
The data shows that younger workers — aged 16-24 — saw the steepest decline in employment last month, of 1.8 per cent. The figures point to companies preparing to manage their rising costs before the change by laying off younger staff, who will become more expensive to hire after recent policy changes. Higher employment taxes will make the average employee on a median wage £900 more expensive to employ.
The government has also abolished the lower minimum wage for workers aged 21-23 and the new £12.25 living wage will apply to all employees above the age of 21. The increase in employers’ national insurance will disproportionately hit younger and low-paid staff after the threshold for the tax was lowered from £9,100 to £5,000.
Kevin Fitzgerald, managing director of Employment Hero, said businesses were likely to lay off younger staff to manage their costs. “Younger employees often require more training and support. Rather than replacing them, many SMEs will simply absorb the extra workload themselves, as they can’t afford the additional strain,” he said.
“If this trend continues, we could see a much more challenging job market emerging in the months ahead, particularly for younger workers trying to get their foot on the career ladder.”
Rising employment costs are likely to make it harder for younger people to find work and compound the growth in labour force inactivity among this cohort. The number of 16 to 24-year-olds in the UK not in education, employment or training hit an 11-year high of 987,000 at the end of 2024 — a rise of 110,000 over the last year.
Younger men were more likely to be without any form of work or education, with 14.4 per cent of this cohort designated as “Neets”, compared with 12.3 per cent of women.
• More teenagers on benefits for mental health than before Covid
More than a third of 18 to 24-year-olds (34 per cent) in the UK report suffering from “common” mental health problems, making them the section of the population with the worst mental health outcomes. The government has launched a “youth guarantee” scheme to enable all 18 to 21-year-olds in England to access a job, training or education.
Separate labour market figures for February showed a stabilisation in job openings, which rose by 0.1 per cent over the month to 1.55 million, data from the Recruitment and Employment Confederation showed. The largest gains were in the construction sector, where vacancies rose by 110,000, or 13.2 per cent, between January and February.
Neil Carberry, chief executive of the REC, said the data was a welcome sign that businesses were ready to hire again despite the “challenging outlook on national insurance hikes, wage increases, global political shifts and uncertainty about” reforms to workers’ rights.
