James Reed: Youth unemployment crisis will have decades-long impact

Labour finds itself in an uncomfortable bind of its own making. The same government pushing to tackle youth unemployment has simultaneously made young workers more expensive to employ, creating a policy collision that threatens to lock an entire generation out of the jobs market. James Reed, whose recruitment firm processes 30 million job applications annually, warns that rising wage floors combined with tax increases are pricing inexperienced workers out of opportunities.

His calculation is stark: £29,654 to employ a full-time 21-year-old in an entry-level position. That figure combines the rising minimum wage floor with April's employer National Insurance increase from 13.8 to 15 per cent, alongside the lowered threshold that pulls more wages into the tax net. For businesses operating on tight margins, particularly small and medium-sized enterprises, this represents a meaningful barrier to taking a punt on inexperienced workers.

The economic logic is straightforward enough. As the mandatory cost floor rises, employers naturally tilt towards more experienced candidates who can justify the expense from day one. Why gamble nearly £30,000 on training someone fresh out of school when that same budget could secure a worker who already knows the ropes?

When protection becomes exclusion

Alan Milburn, leading the government's investigation into record youth unemployment and inactivity, has warned of a "long-term scarring effect" for those locked out of work early. His research, expected later this year, suggests that young people who fail to gain employment in their twenties often remain unemployed into their thirties, forties, and beyond. The implications for individual lives and the broader economy are profound.

As the mandatory cost floor rises, employers naturally tilt towards more experienced candidates who can justify the expense from day one.

But this narrative deserves scrutiny. The Low Pay Commission—the independent body that advises government on minimum wage levels—has consistently found limited evidence that previous increases damaged youth employment. Historical data suggests the British labour market has absorbed higher wage floors without the apocalyptic job losses some predicted.

Youth unemployment rates respond far more strongly to broader economic conditions than to wage policy tweaks. That said, the political optics remain awkward. Reports suggest even Deputy Prime Minister Angela Rayner has begun raising concerns internally about minimum wage impacts, signalling growing recognition within government that progressive wage policy and youth employment strategy might be working at cross purposes.

The apprenticeship alternative

Reed's firm has proposed what it calls a "three-lane superhighway" into work: strengthened employment pathways, expanded apprenticeships, and reformed university degrees that better prepare graduates for actual jobs. The apprenticeship route deserves particular attention here, given that it offers employers a lower initial wage floor whilst providing young people with structured training and a route into permanent work.

Scaling apprenticeships has been government policy under multiple administrations, yet progress remains frustratingly slow. Small businesses cite bureaucracy and cost as barriers, whilst a stubborn cultural preference for university persists amongst families and schools. The apprenticeship levy—which large employers must pay regardless of whether they train anyone—has done little to shift these fundamentals.

The real cost of inaction

The deeper question is what happens to young people priced out of entry-level positions. They don't simply wait patiently for the market to adjust. Research into youth unemployment spells shows that extended periods out of work create gaps on CVs that become harder to explain with each passing month, whilst skills and confidence atrophy.

Policies designed to protect workers may inadvertently create a two-tier generation: those who secured their first job before costs rose, and those locked out afterwards.

Employers, presented with two comparable candidates, will almost always choose the one with recent work history. This creates a perverse outcome where policies designed to protect workers may inadvertently create a two-tier generation: those who secured their first job before costs rose, and those locked out afterwards.

What's genuinely concerning about Reed's intervention isn't the precise accuracy of his 70 per cent figure—reasonable people can debate whether comparing 2019 costs to 2024 costs tells us anything useful in isolation. Rather, it's that someone processing millions of job applications feels compelled to sound the alarm publicly, risking accusations of talking down worker pay.

The government faces a genuine policy collision. Milburn's review will likely recommend expanded support programmes and better transitions from education to work. But if Reed is even partially correct about cost pressures, those recommendations must grapple with whether current wage policy inadvertently undermines their effectiveness.

Chancellor Rachel Reeves and Employment Minister Alison McGovern have limited room to manoeuvre. Rowing back on minimum wage increases would trigger fury from unions and Labour's base. Yet continuing on the current trajectory risks baking in youth unemployment at levels that damage individuals and the economy for decades.

The challenge will be finding mechanisms that support youth employment without creating a permanently lower wage tier that becomes exploitative. Time-limited wage subsidies, expanded apprenticeship funding, or employer National Insurance relief for first-time young hires could all feature. What government cannot do is pretend the tension doesn't exist whilst waiting for Milburn's findings to provide political cover for difficult choices.