Younger workers and those in entry-level positions are experiencing the most significant impact from escalating employment costs, according to fresh analysis from the National Institute of Economic and Social Research (Niesr). The think tank's latest economic outlook reveals that recent policy measures have substantially increased the financial burden on businesses when taking on new staff.
Policy Measures Drive Cost Increases
Several government initiatives have contributed to rising labour expenses for UK companies. These include increases to the national minimum wage, reforms to employment rights legislation, and adjustments to national insurance contributions. Niesr's analysis indicates these combined factors have raised the marginal cost of hiring by approximately 7% in real terms for entry-level positions.
Sectors Most Vulnerable to Cost Pressures
The research highlights that industries with greater exposure to minimum wage requirements are experiencing more pronounced effects. Particularly affected sectors include hospitality, hotels, and food service chains – all traditionally reliant on younger and early-career workers. These industries typically operate with narrower profit margins, making them more sensitive to labour cost increases.
Rather than implementing widespread job cuts, many businesses have responded to these financial pressures by slowing their hiring rates. This strategic adjustment has created a particularly challenging environment for those entering the workforce or positioned at the margins of the labour market.
Youth Unemployment Concerns Mount
Official statistics underscore the growing difficulties facing younger job seekers. Recent Office for National Statistics (ONS) data revealed unemployment reached its highest level since early 2021 during the three months to September. The situation appears especially concerning for those aged 18 to 24, with an 85,000 increase in unemployment within this demographic during the three months to October – representing the largest quarterly jump since November 2022.
Rising Numbers of Young People Disengaged
The number of young people classified as Neets (not in employment, education, or training) has been steadily increasing since 2021, reaching the highest level recorded since 2014. This trend suggests broader structural challenges within the youth employment landscape beyond immediate hiring slowdowns.
Niesr's report concludes that "it is hard to escape the conclusion that the rising cost of labour has deterred full-time job creation, particularly for younger workers." The analysis suggests that while existing employment remains relatively stable, opportunities for new entrants to the workforce are diminishing as companies become more cautious about expanding their payrolls.
Expert Commentary on Policy Impacts
Lord Frost, director general of the Institute of Economic Affairs, offered a stark assessment of the findings. He stated the research "laid bare the costs of the Government's national insurance and minimum wage hikes, and Employment Rights Act: a spike in the cost of hiring entry-level workers, meaning fewer jobs and opportunities for young people."
The analysis presents a complex picture of a labour market where policy interventions designed to improve worker protections and compensation may be having unintended consequences for those attempting to enter employment. As businesses navigate increased operational costs, the most vulnerable segments of the workforce appear to be bearing the brunt of these economic adjustments.
