What If Minimum Wage Outpaces The Rest Of The Economy?

What happens when the minimum wage keeps rising faster than everything else? On paper, it looks like progress - higher wages for the lowest paid, more money in people’s pockets. But for hospitality, it brings a different kind of challenge: who gets hired, who gets left out, and how sustainable is it when the bottom rises faster than the middle.

In April 2025 the National Living Wage for those aged 21 and over rises to £12.21 per hour. That’s a 6.7% jump on the year before. But it’s the younger brackets that see the biggest hikes: 18–20 year olds go up 16.3% to £10.00 per hour, and 16–17 year olds rise 18% to £7.55. These are huge increases in a single year, far steeper than the growth in most business revenues.

The logic behind reducing age bandings has been fairness - why should a 21-year-old be paid less than a 25-year-old for the same work? But here’s the reality. When wages for younger staff shoot up by double digits, they lose their one advantage in the jobs market: being cheaper. If you’re an employer and the cost of hiring an 18-year-old with no experience is almost the same as hiring a 30-year-old with 10 years of experience, who are you going to pick?

Evidence from when the NLW age banding was lowered in 2021 showed no immediate collapse in employment, but it did show that younger staff saw fewer hours, often pushed into part-time roles. The risk now, with such steep rises for 16–20 year olds, is that we start to see higher youth unemployment, especially in sectors like hospitality where first jobs matter most.

Then there’s the issue of wage compression. Minimum wage growth is now outpacing pay growth across the wider economy. Since 2021, the NLW has risen by around 50%, while average earnings in the private and public sector have grown closer to 25–30%. That gap is closing fast. The “bite” of the minimum wage - how close it sits to the median wage - is now over 65%, one of the highest levels in the developed world.

And this creates a new challenge. If you can earn £12.21 an hour stacking shelves, pulling pints, or working in a café, why take on a care job at £13 an hour with twice the stress and responsibility? Why stick in a public sector admin role with limited flexibility when hospitality or retail pays almost the same? For some people, it may soon be more lucrative to walk out of those jobs and into minimum-wage roles.

For hospitality, that might sound like a good thing - more experienced staff from other industries entering the labour pool. But it comes with strings attached. Expectations rise. People used to higher-status roles may demand better training, clearer career paths, and higher standards of management. And all the while, the young people who once filled the sector’s entry-level jobs risk being priced out altogether.

The “what if” here isn’t just about payroll costs. It’s about the shape of the workforce. What if hospitality becomes the default job for mid-career workers escaping low-paid sectors, while 16–20 year olds struggle to find their first foot on the ladder? It could transform who we employ, how we train, and even the culture of the industry.

The challenge for operators is to plan ahead. Rising wages don’t just change the numbers on the P&L. They change who walks through the door looking for work.