Increases to both minimum wages and employer National Insurance contributions threaten to reduce employment opportunities for younger people, according to the Institute for Fiscal Studies (IFS).

The IFS said that tax and wage changes would make hiring an 18 to 20-year-old on the minimum wage 12.7% more expensive when adjusted for inflation.

This rises to about 14% for workers aged 16 to 17 and compares with a 7% rise for an adult worker on the national living wage. The national living wage, which applies to workers over 21, has risen from April 1 to £12.21 an hour, an increase of 3.4%. The minimum wage, which applies to those aged 18 to 20, has risen to £10 an hour, an increase of 12.7% and the biggest jump since the minimum wage was introduced in 1999.

Sam Ray-Chaudhuri, research economist at the IFS, said the pay boost for younger workers “risks reducing opportunities for those about to enter the labour market. He added:

“We know that spells of unemployment early on in people’s careers can have long-lasting effects on their career trajectories.

Given existing worries about how young people have fared over recent years, it will be important to proceed cautiously and closely monitor the effects of these policies on this group, to avoid young people being left behind.”

Changes to national insurance, which were introduced on 6 April 2025, will also hit lower-paid workers after the government lowered the earnings threshold for the tax from £9,100 to £5,000 a year.

Although employees under 21 are not subject to NICs, the IFS said younger workers were disproportionately in sectors like leisure and hospitality that are facing the brunt of the changes.

Hospitality employs more than a quarter of all 18 to 20-year-olds in work and will pay 3.8% higher employer costs.

Costs in the retail sector will rise by just over 3%.

The IFS said:

“The changes taking effect this week incentivise firms to make greater use of higher-skilled (higher-paid) workers, self-employed sub-contractors, and labour-saving technologies like tablet ordering or self-checkouts, all of which could limit employment opportunities for young people.”