Young adults and the minimum wage: the case for lowering age eligibility
Commissioned by: UNISON
Since April 2016, the age of eligibility for the government’s ‘national living wage’ (NLW) has been set at 25, with younger workers receiving lower statutory minimum wages. This report was commissioned by UNISON to critically review research relating to minimum wage differentials by age. It begins with a brief economic profile of adults under 25. It then reviews the Low Pay Commission’s (LPC) evidence base, as well as studies from other countries relating to age differential minimum wage rates and literature on how employers make hiring decisions with regard to age. The report also includes a discussion of the business case for not using age differentials, based on four case studies and studies from business organisations.
There is strong evidence that people from the age of 21 should be eligible for the NLW
- 21-24 year olds are currently experiencing high earnings growth, low unemployment and high employment. The large majority of this age group (86 per cent) were already being paid the NLW or above in April 2016.
- 21 year olds did not suffer negative employment outcomes from a significant wage rise in 2010, when the economy had only just returned to growth after recession. Not only does the research fail to show negative outcomes from raising wages for 21 year olds, it provides evidence that eligibility for higher wages encourages greater labour market participation.
- Before the introduction of the NLW, the LPC advocated that 21 should be the age of eligibility for the highest adult rate. They made this recommendation because the majority of 21 year olds were already paid the adult rate or above. Those that weren’t were mainly employed by larger employers who could absorb the cost.
- The strong labour market performance of this group, the previous rationale of the LPC, and the recent evidence that raising wages for this group does not generate negative employment outcomes, and may actually encourage greater labour market participation mean it would be consistent with the LPC’s remit to recommend that eligibility for the NLW be lowered to 21.
Raising the value of minimum wages for people under 21 has not historically harmed employment outcomes
- Increasing the value of youth minimum wages for people under the age of 21 in the UK has not had negative employment effects outside of economic downturns, and does not affect young people’s educational choices.
- Evidence from both of the UK and abroad indicates that increasing the value of the minimum wage for teenagers encourages greater labour market activity in this group.
- The body of evidence on the productivity of young workers is conflicting, and shows that productivity and age may not have as straightforward a relationship as is often assumed- increasing the value of minimum wages of young people may increase their productivity.
- There is some evidence from both the UK and abroad that a large difference in value between youth rates and adult rates leads to the substitution of older workers for younger ones. Recent surveys of employers in the UK suggest that the current difference between the NLW and the youth rates may risk this occurring.