An increase in the wage rate when the substitution effect dominates will ________ labor force participation and ________ hours of work (of those working before and after the wage increase).

Question

Quizplus · Accepted Answer

When the substitution effect dominates, an increase in the wage rate makes leisure more expensive relative to work, leading to an increase in labor force participation and an increase in hours worked.

An Increase in the Wage Rate When the Substitution Effect