JLF’s Roy Cordato weighs in on the debate over hiking the minimum wage.

Higher wages are the result of capital accumulation and economic growth, not the cause of it. To argue that new economic growth will be stimulated by a coerced increase in the minimum wage shows an unfortunate ignorance of this fact. It is an ignorance that is embedded in the Keynesian model itself.

All of this assumes that, on net, the wealth transfer from employers to employees will actually occur. This is a tenuous assumption at best. 

The fact of the matter is that increases in the minimum wage will cause some people to lose their jobs and make it impossible for some of those looking for work to find it. This is because, as the minimum wage increases, fewer low-skilled workers will qualify for the positions that are available. 

So while some people will end up with higher wages, others will end up with no wages at all. Therefore, even from a flawed Keynesian perspective, to argue that there will be a net transfer of wealth from those with a “lower marginal propensity to consume,” to invoke Keynesian jargon, to those with a “higher marginal propensity to consume,” one would have to factor in all those workers whose wages have fallen to zero as a result of the minimum wage increase.