Question

The Texas Senate and Governor has hired you as an economic and policy advisor. Your clients would like to know if they should raise minimum wages, inclusive of the minimum wages of wait staff. What are your policy recommendations?

The micro argument should involve theories learned from:

Theory of the Firm, Costs of Production, Resources Costs, MRP, MC,

Answer 1

Focusing on various basic theoretical foundations of Microeconomics or Production Economics, a comprehensive increase in the minimum wages by the companies or business organizations would primarily increase the wage rate of individual workers or employees thereby raising the marginal variable cost of production and the overall or total marginal cost of production, holding everything else constant as the companies continue its production or operational activities. This would further consequently lead to an increase in the total cost or expense of production of the firms or companies due to an increase in the factor or input cost, holding everything else as constant, as labor constitutes one of the prominent factors or inputs of production in the production or operational process. Now, based on the profit-maximizing condition of the individual firms, they will continue to hire laborers, workers, or employees until the wage rate is equal to the marginal revenue product of each individual worker or laborer. Therefore, as the minimum wage rate of individual workers increases, the marginal revenue product of the existing workforce or the incremental revenue generated by the firms due to the marginal productivity of each existing worker or laborer would also have to increase to hold the prevailing profit-maximizing or economically optimal of labor employment by the firms or companies. Otherwise, an increase in the marginal cost of production and the total production cost or expense due to the increase in the minimum wage or overall factor/input cost would lead to expulsion or laying off of workers or laborers from the existing workforce by the firms or companies as part of their cost-cutting endeavor to maintain desired profit level leading to higher unemployment in the labor market, again considering everything else as constant or unchanged.