Young People

5.1 Since the Commission’s establishment, we have made the case that young people should be treated differently to their older counterparts. In our First Report (LPC, 1998) we argued that the threat of unemployment for young people was far greater than for older workers. Further, we did not wish to see the minimum wage restrict opportunities for training or work that developed basic skills. On our recommendation, therefore, those aged 16–17 were exempt from the minimum wage when it was introduced in 1999. At the same time the Government introduced a separate rate for 18–21 year olds. In our 2004 Report we concluded that there was a case for a minimum wage for 16 and 17 year olds, which would act as a wage floor to prevent exploitation. The Government accepted our recommendation and introduced a 16–17 Year Old Rate in October 2004.

5.2 In this chapter we continue to make a distinction between 18–21 year olds and 16–17 year olds, not least because each group is subject to a different wage floor. For each age group, we examine earnings for evidence of an impact from the minimum wage and then investigate whether it has affected participation rates in education and employment. We start by looking at 18–21 year olds, before considering the case for 21 year olds being entitled to the adult rate. We conclude this chapter by looking at 16–17 year olds before going on to review the apprentice exemptions in Chapter 6.

Overview

5.3 Young people often lack experience in the workplace and are therefore more likely to be on lower earnings than older workers (as already shown in Chapters 2 and 4). Figure 5.1 shows that earnings rise with age for young workers. More than 90 per cent of 16 and 17 year olds earn less than £7.00 per hour, whereas fewer than 30 per cent of 24 year olds do.

Figure 5.1 Cumulative Hourly Earnings Distribution, by Age for Young Employees, UK, 2008

Source: LPC estimates based on ASHE 2007 methodology, standard weights, UK, April 2008.

5.4 In contrast to most of the groups of workers discussed in the previous chapter, the employment prospects of young people, especially those aged 16–18, have been in general decline over the last decade. Our concerns are heightened this year as young people are usually particularly vulnerable in an economic downturn as firms stop hiring and make their least-skilled staff redundant.

5.5 In addition to these concerns, young people are also more likely to gain employment in the low-paying sectors than their older counterparts. Although those aged 16–21 made up 8.0 per cent of the UK workforce, they accounted for 16.9 per cent of the workforce in the low-paying sectors in the fourth quarter of 2008. The sectors with the highest proportions of young workers are hospitality and hairdressing (around a quarter of the workforce in each). Over 60 per cent of young workers (aged 16–21) work in the low-paying sectors compared with just 30 per cent of all ages. Around a third of young workers are employed in the retail sector.

5.6 In response to our written consultation, Citizens Advice Scotland told us it believed young people can be particularly vulnerable to low pay and poor working conditions because of a lack of knowledge of employment rights combined with a need to earn money whatever the conditions. It also said employers lack understanding of National Minimum Wage rates for young people and that some unscrupulous employers take advantage of young workers. The British Youth Council (BYC) highlighted the need to recognise that many young people aged under 22 work to support themselves. The BYC believes it is important that young workers are not stereotyped as working for pocket money and it should be taken into account that young people aged 16–21 often have the same costs and responsibilities as those aged over 22. This view was echoed by the young women we met from the YWCA during a Commission visit to London.

‘Youth rates are unfair as many young people have the same costs as older workers….people presume young people have help and support around them, for example families, but this is not always the case.’

Young women from the YWCA
Commission visit to London

5.7 When recommending minimum wage rates for young people, we have aimed to ensure the rates do not provide an incentive for young people to leave education or training and do not harm the employment prospects for those who decide to enter the labour market. Nevertheless, we believe young people should receive a fair rate of pay and be protected from exploitation by a minimum wage.

18–21 Year Olds

5.8 Up to October 2008, the Youth Development Rate had increased in line with the adult rate, rising by 59 per cent since its introduction in April 1999. Between April 1999 and October 2008, the Youth Development Rate increased in real terms by just over a third when measured against Consumer Price Index (CPI) inflation (an increase of £1.01 an hour) and by a fifth (62 pence) when measured against Retail Price Index (RPI) inflation. In relative terms the Youth Development Rate increased by just under 10 per cent when compared with the growth in average earnings (an increase of 28 pence per hour).

5.9 The minimum wage for 18–21 year olds increased by 3.4 per cent to £4.60 per hour in October 2007 and by 3.7 per cent to £4.77 per hour in October 2008. Taken over the two years, these increases were roughly in line with pay settlements and average earnings growth in the whole economy, greater than the growth in CPI, but less than the growth in RPI.

Earnings

5.10 Figure 5.2 shows that the high proportions of 18–21 year old workers paid at the Youth Development Rate and adult rate in April 2007 shifted in April 2008 in line with the October 2007 upratings. The spikes at the Youth Development Rate and adult rate in April 2008 were higher than in April 2007, showing that a higher percentage of people were paid at these rates than a year before, despite the increase in the minimum wage in October 2007 being smaller than the previous four upratings.

Figure 5.2 Hourly Earnings Distribution for Employees Aged 18–21, UK, 2007–2008a

Source: LPC estimates based on ASHE 2007 methodology, low-pay weights, UK, April 2007–2008.

Notes:

a. YDR and adult rate labels show the Youth Development Rate and adult rate in April of the given year.

* Five pence bands are used except where stated otherwise (bands labelled by minimum pay amount).

5.11 The proportion of jobs held by 18–21 year olds that paid below the Youth Development Rate, as shown in Table 5.1, remained constant in April 2008 (2.6 per cent). Many of these jobs are likely to be performed by apprentices and thus subject to the apprentice exemptions rather than resulting from non-compliance by employers. Although the proportion of jobs paid below the Youth Development Rate remained constant, there is tentative evidence to suggest that employers are making greater use of youth rates for this group. Despite the smaller increase in the youth rates in October 2007, the proportion of jobs held by 18–21 year olds paying at and above the Youth Development Rate and below the adult rate rose to 17.1 per cent in 2008 (from 16.7 per cent in 2007 and 15.1 per cent in 2006). At the same time, the proportion paying at and above the adult rate fell to 80.3 per cent in 2008 (from 80.7 per cent in 2007 and 82.5 per cent in 2006). We estimate that around 6 per cent (113,000) of 18–21 year olds were covered by the October 2008 uprating of the Youth Development Rate.

Table 5.1 Proportion of Jobs Held by 18–21 Year Olds, by National Minimum Wage Rate, UK, 2004–2008ab

Source: LPC estimates based on ASHE with supplementary information 2004–2006 and ASHE 2007 methodology April 2006–2008, low-pay weights, UK.

Notes:

a. Direct comparisons between the 2004–2006 and 2006–2007 series should be made with care due to changes in methodology.

b. We define the minimum wage rates as the five pence band that lies from the applicable rate to strictly less than five pence above the applicable rate (e.g. we define the adult rate in 2008 as from £5.52 to strictly less than £5.57).

5.12 Aggregate data from the Annual Survey of Hours and Earnings (ASHE), reported in Table 5.1, indicate that employers may be making more use of youth rates although the results from our commissioned research indicate this may be sector specific. Incomes Data Services (IDS, 2009) found employers in the fast food, pubs and restaurants sector continue typically to use youth rates and to pay the adult rate from age 22. In some of the companies IDS surveyed within this sector, young people made up a third of the workforce. Companies it surveyed from the fast food sector were most likely to pay the Youth Development Rate for 18–21 year olds.

5.13 In contrast, IDS found that the retail sector continues to move away from age-related pay structures. The research suggests that the majority of employers in this sector tend to use one rate of pay for those aged under 18 and pay adult rates from age 18. Written evidence from the British Retail Consortium (BRC) supported this. It stated that the majority of its members do not use the youth rates and have continued not to, despite narrowing profit margins. But it noted that some retailers did use the Youth Development Rate as a starting point when deciding hourly wage rates.

5.14 We also found sectoral differences during our oral evidence sessions. The Association of Convenience Stores (ACS) said that some of its members use the Youth Development Rate and that it should be kept. Whereas the Cleaning and Support Services Association (CSSA) said that youth rates are not generally used in its sector.

5.15 More detailed results from ASHE support IDS’s findings. In April 2008 retailers had not increased their use of youth rates for 18–21 year olds. This is in contrast to the hospitality sector, where the proportion paid less than the adult rate increased by 2.0 percentage points over the year.

5.16 We conclude, therefore, that the minimum wage has had a major impact on the earnings of 18–21 year olds, as evidenced in Figure 5.2 by the high proportions paid at the youth and adult minimum wage rates. Earnings at the lowest decile remain at least level with the minimum wage, which has been the case since the minimum wage was introduced. We now look at whether this has had a negative impact on their education or employment prospects.

Participation in Education and Economic Activity

5.17 As previously mentioned, we do not want the National Minimum Wage to provide a disincentive for young people to enter or remain in full-time education (FTE). To date, there has been no evidence that the minimum wage has had a detrimental impact on young people’s participation in education. The proportion of 18–21 year olds in education has generally been increasing since before the National Minimum Wage was introduced, reaching over 40 per cent in the fourth quarter of 2008. The economic activities of young people in FTE and not in FTE are different. As you would expect, most 18–21 year olds in FTE are inactive (around 55 per cent in the fourth quarter of 2008) and most 18–21 year olds not in FTE are employed (around 70 per cent in the fourth quarter of 2008). As education and training are likely to lead to enhanced career prospects and higher future earnings, we are less concerned about the impact of the National Minimum Wage on those in FTE. In this section we therefore focus our analysis on the impact on employment of those not in FTE.

5.18 Since 2000 the employment rate of 18–21 year olds not in FTE has been in general decline. Figure 5.3 shows that inactivity rose steadily over the same period while unemployment increased sharply between 2004 and 2006. More positively, from the middle of 2007, the employment rate of 18–21 year olds not in FTE had shown signs of recovery, although there are now signs that the recession has started to affect this age group. The employment rate of 18–21 year olds not in FTE in the fourth quarter of 2008 was lower than a year ago at 69.6 per cent and the unemployment rate higher at 17.4 per cent. The inactivity rate was similar to a year ago with 15.8 per cent of 18–21 year olds not in FTE. The data suggest that the minimum wage increase in 2007 did not have an adverse impact on the employment opportunities of this group. For the latest 2008 uprating it is difficult to distinguish between a possible impact from the minimum wage and the impact from the recession.

Figure 5.3 Economic Activity of 18–21 Year Olds Not in Full-time Education, UK, 1993–2008

Source: LPC estimates based on LFS Microdata, quarterly, four-quarter moving average, UK, 1993–2008.

5.19 Despite high total employment levels, it is unclear why young people have fared badly in the recent past compared with other age groups. And although during the current economic climate total employment remains historically high, we expect the labour market position of young people to worsen. This expectation finds support from the latest available monthly data for 18–24 year olds published by the Office for National Statistics (ONS) (more disaggregated age groups such as 18–21 year olds are only available on a quarterly basis). In the three months to January 2009, the employment level of 18–24 year olds fell by 0.4 per cent, the highest fall of any age group except for 16–17 year olds. Their employment rate fell by 0.5 percentage points, again the second highest fall of any age group after 16–17 year olds.

‘…employment prospects for young people deteriorate during a recession…we support retention of the current youth rates – in the current economic climate.’

Federation of Small Businesses (FSB) oral evidence

5.20 Given that 18–21 year olds have continued to do less well in the labour market than older workers, we believe that lower National Minimum Wage rates for these young people are still justified in order to protect their employment and at the same time reflect the training element attached to younger workers. But we continue to believe there is a case for applying the adult rate from age 21.

21 Year Olds

5.21 Since 1998, the Commission has consistently recommended that 21 year olds be entitled to the adult rate of the minimum wage. Our view has been that the employment prospects of 21 year olds do not need to be protected by the Youth Development Rate. We set out below our analysis of the labour market position of 21 year olds.

Earnings

5.22 The evidence on earnings suggests that most employers already pay 21 year olds at least the adult rate. According to ASHE, in April 2008 nearly 90 per cent of 21 year olds were paid at or above the adult rate, with only 60,000 being paid less. Around 10,000 of these were on a trainee rate, leaving 9.8 per cent of 21 year olds (not on trainee rates) paid less than the adult minimum wage rate in April 2008. ASHE also suggests that the 21 year olds paid less than the adult rate work mainly in large firms in the retail and hospitality sectors. Many also work in sectors that are not generally low-paying. We believe that the businesses affected should be able to absorb the additional costs imposed by this change.

5.23 As shown in Table 5.2, data from ASHE indicate that since 2007 hourly earnings at the lowest decile for 21 year olds have been closer to those of 22 year olds than to those of 20 year olds. Pay increases at the lowest decile for 21 year olds were in line with those for 22 year olds and were much higher than for 20 year olds in 2007 and 2008. Between 2005 (not shown) and 2007, ASHE suggests there was a reduction each year in the differential in lowest decile earnings between 21 and 22 year olds. Although this differential increased in 2008, it remains minimal at 10 pence, with the lowest decile earnings for 21 year olds at 98 per cent of those for 22 year olds. In contrast, the differential in lowest decile earnings between 20 and 21 year olds has increased from 7 pence in 2006 to 39 pence in 2008. Earnings for the lowest decile of 20 year olds as a proportion of 21 year olds has fallen from 99 per cent in 2006 to 93 per cent in 2008.

Table 5.2 Gross Hourly Earnings for Young People, by Age, UK, 2006–2008

Source: LPC estimates based on ASHE 2007 methodology, standard weights, UK, April 2006–2008.

5.24 Table 5.3 shows that in April 2008 the bite of the Youth Development Rate on 21 year old earnings at the lowest decile was 84 per cent. If, in April 2008, 21 year olds had been entitled to the adult rate, the bite would have been 100 per cent at the lowest decile. This is consistent with the starting age of the Youth Development Rate (age 18), where the bite of the Youth Development Rate at the lowest decile was also 100 per cent. In April 2008 the bite of the adult rate on 22 year old earnings at the lowest decile was 99 per cent, only 1 percentage point lower than what it would be for 21 year olds.

Table 5.3 Bite of the Minimum Wage, by Age, UK, 2008

Source: LPC estimates based on ASHE 2007 methodology, standard weights, UK, April 2008.

5.25 As most employers already pay at least the adult minimum wage rate to those aged 21, and the bite of the adult rate at the lowest decile is not more than 100 per cent, we believe a move to start the adult rate at age 21 would have a minimal impact on employers. In addition, hourly earnings at the lowest decile for 21 year olds have been closer to those of 22 year olds than to those of 20 year olds in recent years.

Labour Market Outcomes

5.26 As noted in the Government’s economic evidence to us in December 2008, and shown in Figures 5.4 and 5.5, the employment and unemployment rates of 21 and 22 year olds not in FTE have been more closely aligned than previously. In recent years, 18–20 year olds not in FTE have fared worse in the labour market than 21 year olds not in FTE.

5.27 Between the introduction of the minimum wage and the end of 2002, the labour market performance of 21 year olds appeared to follow a broadly similar path to that for 18–20 year olds (see Figure 5.4). In the period 2003–2006, the employment rate of 21 year olds improved relative to that for 18–20 year olds. This is particularly noticeable after the end of 2005 when the employment rate for 21 year olds starts to converge with that for 22 year olds. Employment rates were similar for both ages between the third quarter of 2006 and the first quarter of 2008. But the most recent data suggest that the employment rate for 21 year olds has deteriorated as 2008 has progressed, though it remains significantly above the employment rate for 18–20 year olds.

Figure 5.4 Employment Rate of 18–22 Year Olds Not in Full-time Education, by Age, UK, 1998–2008

Source: LPC estimates based on LFS Microdata, quarterly, four-quarter moving average, UK, 1998–2008.

5.28 Looking in more detail at the individual age groups, we find that since 2001 the labour market position of 18 year olds not in FTE has deteriorated more than that of 19–20 year olds, albeit improving since the end of 2006. In the fourth quarter of 2008 the employment rate of 18 year olds not in FTE was 65.1 per cent, 6.2 percentage points lower than in the first quarter of 1999 and 1.1 percentage points lower than in the fourth quarter of 2007. The labour market position of 19–20 year olds has followed a similar pattern to 18 year olds, but they have not fared quite as badly.

5.29 The unemployment rate for 21 year olds not in FTE has generally been much more closely aligned to that of 22 year olds than to that of 18–20 year olds throughout the whole period since the introduction of the minimum wage in 1999 (see Figure 5.5).

Figure 5.5: Unemployment Rate of 18–22 Year Olds Not in Full-time Education, by Age, UK, 1998–2008

Source: LPC estimates based on LFS Microdata, quarterly, four-quarter moving average, UK, 1998–2008.

5.30 In written submissions and oral evidence, some organisations called for the adult rate to remain applicable from age 22, stating that lowering the age at which the adult rate starts would be an additional cost to employers who rely on young people. The Association of Licensed Multiple Retailers noted that the Youth Development Rate gave an incentive for its members to provide training in-house rather than recruiting those with existing skills and it should continue to apply for ages 18–21. In contrast, many organisations called for a lowering of the starting age of the adult rate. The British Furniture Manufacturers and the CSSA stated they would have no objections to lowering the age at which the adult rate is paid to 21. As shown earlier, many unions also advanced the case that the adult rate start at age 21, but for them it is seen as a stepping stone to the adult rate starting at age 16 or 18.

‘…21 year olds should be entitled to the adult rate.’

Unite oral evidence

5.31 We believe that, on balance, the latest evidence still suggests that lowering the entitlement to the adult rate to the age of 21 will not have any marked impact on the employment prospects of 21 year olds. Therefore, we recommend again that 21 year olds should be entitled to the adult rate of the National Minimum Wage.

16–17 Year Olds

5.32 We now turn our attention to the youngest workers covered by the National Minimum Wage, concluding this chapter by looking at 16–17 year olds before going on to review the apprentice exemptions in Chapter 6. When the minimum wage was introduced, 16–17 year olds and apprentices in their first year were exempt from minimum wage legislation. In October 2004, a 16–17 Year Old Rate was introduced at £3.00 an hour. It has since increased by 17.7 per cent to £3.53 in October 2008. This is an increase in real terms of 5.3 per cent (16 pence) when measured against CPI inflation or 2.0 per cent (6 pence) when measured against RPI inflation. In relative terms the 16–17 Year Old Rate has increased by 1.7 per cent (5 pence) when measured against average earnings growth.

5.33 The 16–17 Year Old Rate increased by 3.0 per cent in October 2007 and 3.8 per cent in October 2008. Taking the two years together, these increases were similar to those for older youths and adults. In other words, they are roughly in line with pay settlements and average earnings growth in the whole economy, greater than the growth in CPI, but less than the growth in RPI.

Earnings

5.34 Figure 5.6 shows that the concentration of 16–17 year old workers paid at the 16–17 Year Old Rate in April 2007 shifted in April 2008 in line with the rates introduced in October 2007. Despite the uprating in October 2007 being smaller than the previous year (3.0 per cent compared with 10.0 per cent in October 2006), the proportion of 16–17 year olds paid at the 16–17 Year Old Rate in April 2008 was higher than in April 2007. In contrast, the proportion paid at the applicable adult rate (the most popular rate of pay for 16–17 year olds) in April 2008 was smaller than in 2007. There was no pronounced concentration of 16–17 year olds at the Youth Development Rate in either year.

Figure 5.6 Hourly Earnings Distribution for Employees Aged 16–17, UK, 2007–2008a

Source: LPC estimates based on ASHE 2007 methodology, low-pay weights, UK, April 2007–2008.

Notes:

a. 16–17 Rate, YDR and adult rate labels show the youth and adult rates in April of the given year.

* Five pence bands are used except where stated otherwise (bands labelled by minimum pay amount).

5.35 Table 5.4 shows that in April 2008, the proportion of jobs held by 16–17 year olds that paid below the 16–17 Year Old Rate was similar to previous years (3.9 per cent). Employers seem to be making more use of youth rates when setting pay levels for 16–17 year olds as the proportion of jobs paying below the adult rate has risen. Despite the smaller increase in the youth rates in October 2007, the proportion of jobs held by 16–17 year olds paying at and above the 16–17 Year Old Rate but below the adult rate rose in April 2008 to 61.9 per cent (from 59.1 per cent in 2007 and 56.5 per cent in 2006). In turn, the proportion paying at and above the adult rate fell to 34.2 per cent in 2008 (from 36.9 per cent in 2007 and 39.7 per cent in 2006). We estimate that about 7 per cent (29,000) of 16–17 year olds were covered by the October 2008 uprating of the 16–17 Year Old Rate.

Table 5.4 Proportion of Jobs Held by 16–17 Year Olds, by National Minimum Wage Rate, UK, 2004–2008ab

Source: LPC estimates based on ASHE with supplementary information 2004–2006 and ASHE 2007 methodology April 2006–2008, low-pay weights, UK.

Notes:

a. Direct comparisons between the 2004–2006 and 2006–2007 series should be made with care due to changes in methodology.

b. We define the minimum wage rates as the five pence band that lies from the applicable rate to strictly less than five pence above the applicable rate (e.g. we define the adult rate in 2008 as from £5.52 to strictly less than £5.57).

c. As the 16–17 Year Old Rate was introduced in October 2004 and ASHE measures pay in April, the proportion shown for Above 16–17 Year Old Rate and Below YDR in 2004 (25.0 per cent) is actually the proportion paid below the Youth Development Rate.

5.36 Aggregate data from ASHE reveal that employers may be making more use of the 16–17 Year Old Rate, although again the results from our commissioned research indicate that this may be confined to only some sectors. IDS (2009) found that the fast food sector was the most likely to pay the minimum wage rates for 16–17 year olds. The research also suggested that the majority of employers in the retail sector tend to use one rate of pay for those aged under 18 and pay adult rates from age 18. More detailed results from ASHE, however, indicate that in April 2008 both retailers and employers in the hospitality sector may have increased their use of youth rates for 16–17 year olds.

5.37 In written evidence the BRC said that few retailers use the youth rates. On our visit to Leeds we heard from Asda who pay adult rates from age 16. It decided that the tasks carried out by younger and older workers were the same and saw no reason why it should pay younger workers differently. Asda removed its age related pay structure in 2006.

5.38 UNISON said during oral evidence that the majority of young people were paid above the current minimum wage rates. UNISON also felt that the adult rate should be paid from age 18, and eventually from age 16. It thought this would not have a significant impact on youth unemployment and would lead to greater value being placed on young workers and lower staff turnover.

‘Increasing the rate for young people by paying them the adult rate would mean those who are studying would be able to work less for the same money, and therefore spend more time studying.

Usdaw oral evidence

5.39 Overall, the evidence shows that the minimum wage has had an impact on the earnings distribution of 16–17 year olds. We now look at whether this has led to a negative impact on their participation in education or their employment prospects.

Participation in Education and Economic Activity

5.40 Similar to the 18–21 year old age group, the proportion of 16–17 year olds in education has generally been increasing since before the introduction of the 16–17 Year Old Rate, rising to 77.9 per cent in the fourth quarter of 2008. There is evidence (Battistin, Emmerson, Fitzsimons, Maguire, Middleton, Perren and Rennison, 2005) that the introduction of the Education Maintenance Allowance (EMA) in September 2004 has been an important factor in encouraging more young people to stay in FTE. Despite the increasing proportion of 16–17 year olds in FTE, the Department for Children, Schools and Families (DCSF) estimate that 7.2 per cent of 16–17 year olds (97,000 people) were not in education, employment or training (NEET) in 2007. The 16–17 year old NEET rate has been gradually increasing since the late 1980s, after a sharp decline from 11.0 per cent in 1985 to 5.3 per cent in 1988. We are concerned that the minimum wage should not adversely affect the employment prospects of this group.

5.41 Since the mid-1990s, the labour market position of 16–17 year olds not in FTE has been worsening, although over the last two years it has stabilised. Figure 5.7 shows that since the fourth quarter of 2005, the employment rate of 16–17 year olds not in FTE has been steady at just under 50 per cent while inactivity and unemployment rates have also stabilised at around 30 per cent. Recent minimum wage increases, up to 2007, do not appear to have had an adverse impact on the employment opportunities of these young people. For the latest 2008 uprating it is difficult to distinguish between a possible impact from the minimum wage and the impact from the recession.

Figure 5.7 Economic Activity of 16–17 Year Olds Not in Full-time Education, UK, 1992–2008

Source: ONS, employment rate (AIWG), unemployment rate (AIXR) and inactivity rate (AIYS), for 16–17 year olds not in FTE, quarterly, seasonally adjusted, UK, 1992–2008.

5.42 There appears to be little evidence to suggest that the absence of a minimum wage for 16–17 year olds between 1999 and 2004 led to a move towards employing 16–17 year olds and away from employing 18–21 year olds, who were subject to the Youth Development Rate. Indeed, the employment rate of 16–17 year olds not in FTE generally fell throughout this period. The rate of decline, however, increased after the introduction of the 16–17 Year Old Rate in October 2004 until the fourth quarter of 2005. No impact is observed following the 10.0 per cent uprating in October 2006.

5.43 The evidence suggests that the worsening labour market position of 16–17 year olds not in FTE between the fourth quarter of 2004 and the fourth quarter of 2005 was not due to any detrimental impact from the minimum wage. This worsening coincides with the introduction of the EMA that made staying on in education a more attractive option. The downward trend in the employment of 16–17 year olds not in FTE began in the mid-1990s, before the minimum wage was introduced. Further, the labour market position of young people in general has shown signs of stabilising during times of relatively large increases in minimum wage rates.

5.44 ONS publish monthly data for 16–17 year olds and the latest available data have started to show an effect from the downturn in the economy. In the three months to January 2009, the employment level of 16–17 year olds fell by 5.1 per cent from 517,000 to 491,000, the largest fall of any age group. The employment rate fell by 1.5 percentage points over the same period, again the largest fall of any age group. We will continue to monitor young people throughout the downturn in the economy and thereafter.

Conclusion

5.45 The minimum wage has had a major impact on the earnings of young people. High proportions of young people are paid at the youth and adult minimum wage rates, and earnings at the lowest decile remain at least level with the minimum wage.

5.46 The evidence suggests that the worsening labour market position of young people did not result from any detrimental impact from the minimum wage. For the latest 2008 uprating it is difficult to distinguish between a possible impact from the minimum wage and that from the recession. Young people have continued to do less well in the labour market than older workers and are particularly vulnerable in an economic downturn. Therefore, we believe that lower National Minimum Wage rates for young people are still justified in order to protect employment and at the same time reflect the training element attached to younger workers.

5.47 But we continue to believe there is a case for starting the adult rate at age 21. We recommend again that 21 year olds should be entitled to the adult rate of the National Minimum Wage. We believe this change would have a minimal impact on employers and would not have any marked impact on the employment prospects of 21 year olds. In the next chapter we report on our review of the apprentice exemptions.