Economic theory suggests that the macroeconomic effect of minimum wage increases
on gross domestic product (GDP) is ambiguous. Minimum wage increases may increase
labor costs and output prices, reduce firms’ profits and job training, and cause adverse
employment and hours effects, each of which may reduce GDP. However, if minimum
wage increases raise the earnings of low-skilled workers who keep their jobs—and these
workers have a higher marginal propensity to consume an additional dollar of income
than firm owners or low-skilled workers who lose their jobs—minimum wage increases
will result in higher GDP