The cost-of-living crisis and 16-18 year-olds in jobs with apprenticeships

Blog posts

24 Oct 2022

Becci Newton, Director, Public Policy Research

Follow @beccinewton13

This analysis was originally published in Campaign for Learning's 'Learning in the Cold: The Cost-of-Living Crisis and Post-16 Education and Skills'. The Campaign for Learning’s report sets out the impacts of the cost-of-living crisis on learners, prospective learners, providers and employers in the post-16 education system.
__________________________ 

According to the latest data, 16-18 year olds form 23.7 per cent of the apprentice population. As figure 1 illustrates, over time, their proportion had declined substantially so this is an improvement with 68,500 now involved. However, the published data allows us to know relatively little about this group particularly on the intersections between demographic factors, uptake and completion, and crucially, on individual economic contexts.

Figure 1

(* covering three-quarters of the academic year)

Future Earnings

The latest data contain a promising sign for longer-term financial gains for young people and the economy (Figure 2). While previously, training at Intermediate level (Level 2) was most common for 16-18 year olds, in 2020/21 there is a balance between training at Intermediate and Advanced levels with close to 32,000 in each so more are training at Level 3. If completed, CVER estimates 9 per cent wage returns on average to apprenticeships at Advanced level; and achieving Level 2 predicts much better economic and social outcomes than not doing so.

Figure 2

Current Pay

We should also consider the pay young apprentices attract; it is a key reason for young people to question whether apprenticeships are a good quality opportunity.

Hourly apprenticeship national minimum wage (ANMW) is £4.81, up from £4.30 in 2021 as it was reviewed and uprated due to a finding by the Low Pay Commission (LPC) that it “did not ensure a decent standard of living for young people; left them struggling to cover basic living costs; and could cause hardship and distress”.

An apprentice can be paid the ANMW through to their 19^th birthday whereas a NMW employee will see a raise to £6.83 on turning 18. The 2022 ANMW is an improvement; in 2021 it was 32p less than the minimum wage rate for 16-17 year-olds however, in the current context it may not be enough. 40 per cent of apprenticeship vacancies are advertised at ANMW but employers can pay more. The median gross hourly pay for 16-18s is £6.58 which suggests median monthly pay of around £958 (using an assumption of a UK average 36.4 hours working week) including paid off-the-job training.

However, LPC indicates the “fall in the number of apprentices doing lower-level apprenticeships has driven growth in median pay” hence young people in Intermediate level apprenticeships may be most at risk. For these, monthly wage could be around £700 although those who are care-experienced may attract a one-off payment of £1,000 maintenance costs. However, the LPC records high levels of underpayment of the off-the-job training so monthly pay could be 20 per cent less, nearer to £560.

Impact of the Cost-of-Living Crisis

The current minimum wage rates are reproduced in Figure 3. The Low Pay Commission is considering the rates and structure of the minimum wage from April 2023.

In the context of the cost-of-living crisis, however, the Living Wage Foundation increased its assessment of the basic income people need to ‘get by’ in the UK to £10.90 per hour (£11.95 in London). But changes to NMW and national living wage rates have not been announced and so a basic calculation indicates the ANMW is £6.09 adrift from a rate necessary to ‘get by’.

Whether this pay rate is adequate depends on the circumstances of 16-18 year-old apprentices and specifically the difference their pay makes to their household.

Figure 3

Source: https://www.gov.uk/government/publications/minimum-wage-rates-for-2022

For young apprentices in middle or high-income households supported by family, using their wage for their own lifestyles rather than money their household relies upon, the implications of the inflationary economy may be manageable.

In contrast, young people in low-income households are seeing the value of their contribution to household income decline and travel and subsistence costs rise; those attempting to live independently or building their own families on the ANMW, will struggle.

Entering Higher Paid Non-Apprenticeship Jobs

The risk is the creation of perverse short-term incentives with long-term consequences. The ability to attract a higher wage rate in a non-apprenticeship job on turning 18 - in a tight labour market - may encourage young people to drop-out of apprenticeships to access better paid work short-term. Longer-term, not achieving a Level 2 or 3 has consequences for wages, progression, and health and wellbeing as well as the economy. Completion rates are already weak – we need to turn that around, through improving ‘the offer’ to young people.

Recommendation 1

ONS and DfE should develop and publish data which identifies whether 16-18 year-olds in jobs with apprenticeships are living independently or with parents, and extend the 16-19 Bursary Grant to apprentices from poorer households.

Recommendation 2

HMRC should ensure greater compliance of employers paying the relevant minimum wage rate to 16-18 year-olds on apprenticeships and seek to recoup underpayments from offending employers.

Recommendation 3

18 year-olds on apprenticeships should be entitled to the current employed 18-20 year-old rate of £6.83 from day one of starting their apprenticeship.