Economic theory unambiguously states that minimum wages should reduce employment opportunities for low-wage workers. However, recent empirical evidence has forced economists and policy analysts to question the validity of this theory. In particular, economists have attempted to quantify the impact recent minimum wage increases have had on employment. Opponents of the minimum wage argue that its negative effect on employment is large and is difficult to detect because some low-wage workers become employed while others become nonemployed following minimum wage hikes. On the other hand, proponents of the minimum wage contend that its impact on employment is small and thus acceptable from a cost-benefit perspective as well as to the American public. In short, most economists agree that the minimum wage reduces employment opportunities for low-wage workers, but they cannot agree on how much moderate minimum wage increases reduce employment opportunities.
A new area of contention centers on what effect minimum wages have had on educational attainment. Recent research by Turner and Neumark and Wascher have produced contradictory findings. Turner contends that minimum wages have no effect on educational attainment, while Neumark and Wascher argue that minimum wages significantly reduce educational attainment, particularly for minority youth. Because economic theory is ambiguous on how minimum wages affect educational attainment, additional empirical research is needed to answer these important questions.
Another new area of research is the effect minimum wages have on welfare participation. Too little research has been done on this subject for economists or policymakers to reach a consensus. In light of recent welfare reform legislation and proposals to increase the minimum wage, additional research is vital.