UK Unemployment Rises: Is the Minimum Wage to Blame?

A recent uptick in youth unemployment is sparking debate, with Bank of England rate-setter Catherine Mann pointing to increases in the minimum wage as a contributing factor. Modern data reveals Britain’s jobless rate for young people has surpassed the European average, raising concerns about the impact of wage policies on employment opportunities.

Youth Unemployment: A Growing Trend

The unemployment rate for 18 to 24-year-olds reached 13.7 per cent in the three months to November, a rise from 10.2 per cent three years prior. This figure marks the highest level since late 2020. Broader OECD figures show the rate for 16 to 24-year-olds now exceeds the EU average for the first time since records began in 2000.

Overall UK unemployment has also seen an increase, moving from 3.9 per cent to 5.1 per cent over the same period.

The Minimum Wage Debate

Mann suggests the disproportionate increase in youth unemployment is linked to “big increases in the minimum wage for that age group.” The minimum wage for 21 to 22-year-olds has risen by 33 per cent over the past three years, aligning with the national living wage of £12.71 per hour. The rate for 18 to 20-year-olds has increased by 46 per cent to £10 an hour, with a further rise to £10.85 planned for April.

The argument centers on whether these wage increases, although beneficial for those already employed, may be discouraging employers from hiring younger, less experienced workers.

Employer Costs and Hiring Decisions

Paul Johnson notes that the data suggests a shift in the UK’s position regarding youth unemployment, moving closer to the European norm. He highlights that while higher minimum wages benefit existing employees, they can influence hiring decisions. “If you’re an employer and you have to pay effectively the same to a 17-year-old as you would to a 25-year-old, it’s hard to see, in general, why you’d choose that 17-year-old who’s got no experience of any kind,” he stated.

Lower youth wage bands were initially designed to incentivize employers to hire less experienced staff. Potential changes to these bands, such as Labour’s pledge to abolish age-related pay, could further impact hiring practices.

Broader Economic Context

The Bank of England recently maintained interest rates at 3.75 per cent, forecasting that unemployment could peak at 5.3 per cent this year as economic growth slows. GDP is currently forecast to expand by 0.9 per cent, a decrease from a previous estimate of 1.2 per cent.

The rise in youth joblessness coincides with increased employer National Insurance contributions and living wage increases, particularly impacting sectors like retail and hospitality, which traditionally employ a significant number of younger workers.

Looking Ahead: Unemployment Forecasts

According to the Office for National Statistics, the unemployment rate (aged 16 and over, seasonally adjusted) was 5.1% as of September-November 2025. The next release of this data is scheduled for February 17, 2026. The National Institute of Economic and Social Research (NIESR) forecasts that unemployment will average 5.4% this year, rising to an 11-year high, before falling to 4.1% by 2027.

FAQ

• What is the current unemployment rate in the UK? The unemployment rate (aged 16 and over, seasonally adjusted) was 5.1% as of September-November 2025.
• What is driving the increase in youth unemployment? Bank of England rate-setter Catherine Mann suggests increases in the minimum wage for younger workers are a contributing factor.
• What is the forecast for unemployment in 2027? The AHDB forecasts unemployment to fall to 4.1% by 2027.

Pro Tip: Stay informed about changes to minimum wage laws and employer contributions to understand their potential impact on your business or job search.

Do you believe the minimum wage is impacting youth employment? Share your thoughts in the comments below!