Business leaders have warned that an increase in the minimum wage could harm youth employment and job creation.

The CBI has spoken out against increasing the statutory minimum pay rate, after rumours emerged that the Labour party may pledge to increase it in their forthcoming manifesto.

Richard Lambert, the CBI’s director-general, said: “Young and inexperienced workers’ chances in the labour market are especially sensitive to wages and, although the overall impact of the minimum wage has been positive, trade-offs clearly do exist in terms of employment prospects. That has clear implications for how the minimum rate for young people should be set in the future.”

A minimum wage of £3.60 per hour was introduced in 1999 and has since risen to £5.80 per for those aged over 22. The minimum wage rates for 18-to-21-year-olds and 16-to-17-year-olds currently stand at £4.83 and £3.57 respectively.

The CIPD also advocates a freeze in the minimum wage for younger workers and has said that a nominal increase, pegged to the rate of inflation, should only apply to the over-22 rate this year.

Outlining its policy calls for an economic recovery, the institute’s Platform 2010 manifesto said: “In a recession it is vital that the preservation and creation of jobs takes priority over pay increases. The current downturn is having a far bigger impact on young people than other age groups and it is important to avoid any changes that makes this group less attractive to employers.”

Brendan Barber, TUC’s general secretary, disagreed with Lambert’s position. “The CBI is wrong to blame the minimum wage for fuelling youth unemployment during the recession. In fact, young workers’ employment has held up better in the low-paying sectors than it has in much of the broader economy,“ he said.

Barber added: “Today's youngsters are the most highly qualified, IT-literate and geographically mobile generation the UK has ever seen but the harsh economic climate is preventing most employers from taking on new workers of any age. And for those employers who are able to recruit, it's not wage levels that are making them choose between younger and older workers. A lack of work experience is often a crucial factor.”

The TUC has called for a 3.5 per cent increase in the minimum wage to £6 an hour from October, when any rate would be implemented, saying the rise is needed to ensure that the earnings of low-paid workers do not fall behind the rest of the country and increase the nation’s poverty gap.