Abolish the National Minimum Wage for apprentices and under 18s

The IEA releases new research about the minimum wage

The National Minimum Wage should be abolished for apprentices and under 18-year-olds in the UK to tackle persistently high youth unemployment. Fifteen years after its introduction, the current NMW framework has failed to reduce poverty and has significantly shrunk job opportunities for society’s most vulnerable: the young and unskilled.

A new report, The Minimum Wage: silver bullet or poisoned chalice?, uncovers the adverse effects resulting from continued real increases in the NMW. These include a rise in both zero-hours contracts and unpaid internships, choosier employers and increased black market employment. Plans to push for a Living Wage, as advocated yesterday by the TUC, would exacerbate these problems, pricing more young people out of an already difficult jobs market.
To reduce unemployment and alleviate poverty, the report calls for serious reform of the tax credit system. Not only are tax credits better equipped to target the poorest UK households, they would act as a wage supplement rather than a wage substitute if reformed appropriately. The government must also look to help young people. Suspending the NMW for those under 24 and out of work for more than a year would encourage skills acquisition and long-term employment.
Key findings:

  • The NMW has increased significantly relative to earnings. Since its introduction in 1999, the minimum wage has increased by 75%, whilst average earnings have risen by 61% and the Retail Price Index by 53%. Even since 2008 it has risen relative to earnings (14% vs 10%).
  • The current national framework is too blunt an instrument. The current system is likely to have substantial effects on private sector employment prospects in the regions. For example, in Wales, the NMW is 70% of median hourly earnings in the private sector, compared to just 42% in London.
  • An increasing NMW has led to changing and often undesirable employment patterns. These include: Employers becoming choosier in recruitment, preferring more experienced workers to younger and less skilled workers; increases in both unpaid internships and zero-hour contracts; fewer students in work; and fewer training opportunities for young people as rising wages prevent firms covering the costs.
  • The NMW is not a targeted poverty reduction tool. It does nothing to help nearly half of the UK households in poverty that are workless. Many of the NMW’s beneficiaries are young people living with better-off parents, students, or part-time employees who live with a spouse in full-time employment.
  • The concept of a Living Wage is a straw man. Well over half of those earning below the Living Wage work part-time and many of these are young people with alternative forms of financial support. It has been estimated that 300,000 fewer young low skilled workers would be employed if the Living Wage was rolled out on a statutory basis. At a time when youth unemployment is still remarkably high, this would be a high price indeed.