Conclusion: Uprating the 16-17 Year Old Rate

3.49 Over the last year we have carefully assessed the available evidence on the impact of the introduction of the 16-17 year old minimum wage rate. We have analysed the statistical data provided by the Office for National Statistics (ONS) and other sources on the labour market position and earnings of 16-17 year olds, although we note the limitations to this data cited earlier. We have also received a range of other evidence to supplement our understanding of the impact of the 16-17 year old minimum wage and to enable us to recommend an uprating of the rate in October 2006 that is appropriate and fair.

3.50 We conclude that the labour market conditions for this age group have not been adversely affected by the introduction of the minimum wage. We also received no evidence to suggest that it may have encouraged young people out of FTE or training. Indeed, the evidence we received during our consultation for this report and the research we previously commissioned both show that the vast majority of 16-17 year olds are earning in excess of the current minimum wage rate of £3.00 per hour.

3.51 Trade unions and organisations representing young people argued that the rate should be increased to bring it in line with the youth Development Rate or the adult rate. Conversely, a number of employer organisations called for the rate to be frozen at £3.00 in 2006, or increased at a rate significantly lower than the 2006 percentage increases recommended for older workers.

3.52 We firmly believe that there continues to be a need to protect the position of 16 and 17 year olds in the labour market and to do this it remains appropriate to have a separate minimum wage rate set at a lower level than that for older workers. And we continue to see the main purpose of the 16-17 year old minimum wage as providing a wage floor to prevent exploitation. As noted in our 2004 Report, there is evidence of the scarring effect of unemployment on young people throughout their working lives (e.g. Stewart, 2002) and international evidence that any potential adverse effects of minimum wages are more likely to be felt by young people than adults (e.g. Organisation for Economic Co-operation and Development, 1998).

3.53 We confirmed in our 2004 Report that we saw no reason to link the 16-17 year old rate to the youth Development Rate and we continue to hold this view. But we believe that the current rate of £3.00 is too low. We consider that young people in the workplace need to receive a fair rate of pay and feel valued as members of the workforce. We want to guard against the risk that young people may feel disillusioned with the world of work due to very low wages.

3.54 We need to strike a balance. Taking all the evidence into account, including the fact that the rate for this group of young people was not increased in 2005, we recommend that the minimum wage for 16-17 year olds be increased to £3.30 from October 2006. This represents an increase of 10 per cent on its introductory rate of £3.00 in October 2004. In our 2004 Report we commented that the 16-17 year old rate should be reviewed periodically. We believe that it is appropriate for such reviews to be carried out on a biennial basis, and we recommend that the Government ask us to review the rate in line with the timing of the reviews of the rates for older workers. But we emphasise our view that the purpose of the 16-17 year old minimum wage rate is primarily to prevent the exploitation of young people and we see no correlation between it and the youth Development Rate.

3.55 We estimate that up to 32,000 jobs are likely to benefit from the recommended increase in the 16-17 year old rate in October 2006, which represents 6.5 per cent of all jobs for this age group. But estimating the number of beneficiaries for 16-17 year olds is significantly more difficult than for older workers due to the data limitations highlighted earlier in this Chapter. We believe that the actual number of 16-17 year old beneficiaries will be markedly reduced when apprentices and those on pre-apprenticeship programmes who are exempt from the minimum wage are taken into account.