A £3 minimum wage for 16 and 17-year-olds is to be introduced from October 2004, the government said.
Young workers may get a better deal
Trade Secretary Patricia Hewitt said she made her decision based on advice from the Low Pay Commission.
The commission had found "continued evidence" that young workers were receiving little or no training and "exploitative" rates of pay.
TUC boss Brendan Barber said: "Unions will be delighted that their campaigning has paid off."
The minimum wage for over-21s will rise in October from £4.50 to £4.85 an hour.
For 18 to 21-year-olds it will go up to £4.10 from the current rate of £3.80.
Referring to the main minimum wage rise, CBI deputy director-general John Cridland said: "This is the second successive increase of more than 7%.
"It means that for the first time the wage is worth more in real terms than it was when introduced
Minimum wage rises
April 1999 £3.60 (18-21's £3)
Oct 2000 £3.70 (18-21's £3.20)
Oct 2001 £4.10 (18's-21's £3.50)
Oct 2002 £4.20 (18-21's £3.60)
Oct 2003 £4.50 (18-21's £3.80)
Source: Low Pay Commission
Unions have repeatedly called for a £5 minimum.
The government has also dismissed complaints from some employers as "scaremongering".
A statement said: "The commission has concluded, first, that the overall economic outlook remains favourable, with growth being slightly higher than forecast last year and the labour market remaining robust with high employment and very low unemployment.
"In addition, employment across low-paying sectors as a whole is continuing to grow and there seems to be little or no evidence that the minimum wage is having an adverse impact on these sectors.
"On the basis that the commission believes these recommendations are affordable for business and will not have any significant effect on levels of employment."
Children's charity NCH welcomed the news that the minimum wage was being extended.
"It is only right that this age group have proper protection from the exploitation of unscrupulous employers," a spokesman said.
"This brings long-awaited fairness into the workplace and will be applauded by teenagers up and down the country."
Dr Paul Dornan, of the Child Poverty Action Group, also welcomed the announcement but said the level of £3 an hour was "too low".
"It must be increased on a regular basis to make sure that young people continue to get the income protection they deserve," he said.