Evaluation of the UK’s Trades Union Congress’ Minimum Wage Proposal in 2022

A 2021 survey conducted by the Chicago Business School found that one-third of professional economists were uncertain when asked whether an increase in the US federal minimum wage of more than 50% would adversely impact employment for affected workers (IGM, 2021). Additional conflicting evidence in the literature makes the impact of an increase in the UK’s minimum wage to £15 for all workers demanded by the Trades Union Congress in Augst 2022 hard to assess. Especially since this would be the largest increase since its introduction, with wages rising by one third for workers aged over 23 and almost tripling for workers aged 16 to 17. This paper evaluates this proposal using empirical evidence from the last two decades of minimum wage research and economic theories such as the model of a monopsony and the Hicks-Marshall Law of Derived Demand. Highlighting the empirical challenges of estimating the causal effect of minimum wage increases and the importance of considering heterogenous effects, for example for part-time or full-time employed, this paper concludes that an increase in the minimum wage of the proposed magnitude could reduce employment for affected workers and harm the poorest members of society. This operates through channels such as the passing through of the cost of the minimum wage increase to consumers in the form of higher prices and reduced working hours, offsetting the positive wage effect. Additionally, this paper considers the effects on school enrolment since the Trades Union Congress’ proposal would affect younger workers the most and possible spillovers to households higher up in the income distribution through secondary earners and reservation wage increase of high-wage workers.