Rising Employment Costs ‘Threaten Youth Job Opportunities,’ Warns CIPD

Key Takeaways:

Rising employment costs are putting increasing pressure on employers in Scotland and across the UK, with the Chartered Institute of Personnel and Development (CIPD) warning that young people could be among the hardest hit.

According to the CIPD’s latest Labour Market Outlook survey, more than three-quarters of Scottish employers (76%) have seen employment costs rise due to increases in employer National Insurance contributions (NICs). The impact is especially severe in industries that employ a large number of under-25s — such as hospitality and care — where margins are already tight and labour costs are a dominant expense.

Disproportionate Impact on Youth Employment

While employees under 21 are exempt from employer NICs, the survey found that 37% of UK employers who hire under-21s say NIC changes have increased their employment costs “to a large extent,” compared to just 23% of employers who don’t hire younger workers.

This suggests that youth-heavy sectors are still feeling the strain of wider cost pressures, despite the exemption. The reasons are likely twofold:

Knock-on effects from broader wage structures — increases for other staff impact the entire payroll.

Labour model reliance — many youth-dominated industries also employ significant numbers of staff over the age of 21, especially in supervisory and management roles.

Hospitality and care — both high-employment sectors for young workers — are reporting some of the sharpest impacts. These industries often serve as entry points to the workforce, meaning reduced hiring here could directly limit opportunities for school leavers, college students, and young jobseekers.

CIPD Urges Government Action

The CIPD is calling on both the Scottish and UK governments to act quickly to protect youth employment opportunities and ensure that upcoming employment law changes do not create additional barriers to hiring.

In particular, the professional body has expressed concerns about elements of the proposed Employment Rights Bill, including:

• Introduction of a statutory probationary period.
• Planned changes to rules governing the dismissal of new staff.

While these measures are intended to increase worker protections, the CIPD warns they could also raise the perceived risks and costs associated with hiring inexperienced candidates.

Marek Zemanik, senior public policy adviser for the UK nations at the CIPD, said:

“Business confidence is weakening under the weight of rising employment costs, particularly in sectors like hospitality and care that provide crucial entry points for young people. If new employment laws increase the risk of recruiting new staff, employers are less likely to take a chance on young workers with limited experience and more development needs.”

Other Cost Pressures Weighing on Employers

Rising NICs are not the only financial strain. The April 2025 increase in the National Minimum Wage and National Living Wage has also significantly lifted payroll costs for many employers.

Key findings from the CIPD survey:

• 54% of Scottish employers said the April wage rate increase raised their wage bill.
• Half of UK employers in hospitality and care report NIC changes have increased employment costs to a large extent.
• When asked about the single biggest cost increase in the past year:
  • 27% of Scottish employers cited NIC rises.
  • 20% pointed to energy costs.
  • 10% identified raw materials.

These figures highlight that while inflation in goods and energy remains a concern, policy-driven labour cost increases are now a leading pressure point.

Recruitment and Redundancy Outlook

Despite cost challenges, recruitment activity remains relatively steady in the short term. The survey found:

• 58% of Scottish employers plan to recruit in the next three months.
• 27% currently have hard-to-fill vacancies.
• 43% expect to face difficulties filling roles over the next six months.
• 12% plan to make redundancies in the next quarter.

This mix of hiring intention and redundancy planning reflects a cautious, uneven labour market — one where some businesses still need talent but are being more selective and risk-averse in their hiring.

The Risk to Young Workers

Youth employment is particularly sensitive to economic and regulatory shifts. When labour costs rise, employers tend to:

• Reduce hiring in entry-level positions.
• Increase reliance on experienced staff who can be productive immediately.
• Automate or streamline lower-skilled roles where possible.

For young jobseekers, this can mean:

• Fewer opportunities to gain workplace experience.
• More competition for the remaining roles.
• Longer periods of unemployment after education.

The CIPD’s warning aligns with historic patterns seen during previous cost increases, such as after the 2016 introduction of the National Living Wage, when youth employment growth slowed in several low-margin sectors.

Policy Considerations and the Employment Rights Bill

The Employment Rights Bill, currently under consultation, includes measures designed to strengthen worker protections. However, if implemented without sector-specific considerations, these measures could unintentionally deter employers from taking on young or inexperienced workers.

The proposed statutory probationary period, for example, could formalise dismissal rules in a way that makes employers less inclined to take risks on candidates who require significant training.

Similarly, changes to dismissal procedures could increase administrative burdens and legal exposure for employers, further raising the cost of onboarding new staff.

The CIPD is advocating for:

• Thorough consultation with employers before implementing new measures.
• Support schemes to offset the higher costs of training and developing young workers.
• Targeted incentives for sectors like hospitality and care to continue offering entry-level opportunities.

Skills Investment as a Solution

Beyond policy adjustments, the CIPD emphasises the need for employers to focus on re-skilling and up-skilling as ways to address labour shortages without excluding younger workers.

“Where many employers aren’t expecting to grow their workforces in the coming months, they should monitor workloads and support staff with their wellbeing,” Zemanik said. “Investment in re-skilling and up-skilling opportunities will be crucial to keeping employees engaged and meeting business objectives.”

Employers facing hard-to-fill vacancies may find that training existing staff — including young recruits — is a cost-effective alternative to recruiting externally in a tight labour market.

Potential Government Support Measures

While the CIPD’s recommendations are broad, possible targeted interventions could include:

NIC rebates for employers who take on under-25s in designated sectors.

Training subsidies for entry-level hires.

Simplified dismissal processes during probation to reduce perceived hiring risks.

Sectoral consultation to adapt Employment Rights Bill provisions for high-youth-employment industries.

Balancing Worker Protections and Employment Opportunities

The challenge for policymakers lies in balancing fair employment conditions with a healthy labour market for young people. Stronger rights can improve job quality, but if they raise costs or perceived risks too much, they may reduce access to those jobs in the first place.

The CIPD’s survey serves as a timely reminder that changes to employment law do not happen in a vacuum — they interact with other cost pressures, economic cycles, and employer decision-making.

Conclusion

Rising employment costs are reshaping the Scottish and UK labour markets, with young workers standing to lose the most if hiring slows in youth-heavy sectors. The CIPD’s call for careful policy design and collaborative government action highlights the need to protect entry-level job opportunities without undermining business viability.

As the Employment Rights Bill moves forward, policymakers will need to ensure that new measures are both fair to workers and feasible for employers — particularly those providing the first rung on the employment ladder.

For now, employers, government bodies, and training providers have an opportunity to work together to ensure that the next generation of workers can access meaningful, sustainable employment, even in the face of rising costs.

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