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Unformatted text preview: Compensated wage decrease. Final budget line: Remove nonlabor income X : Initial equilibrium. Y : Equilibrium after a compensated wage decrease: MUST be to the right of point X. Z : Equilibrium after a decline in nonlabor income ( G ). If Z is to the right of Y , leisure is a normal good. Methods and Results: Four pigeons got used to the initial condition. Compensated wage increase was implemented 22 times; 19 of these times labor supply fell. The size of the response was very bird-specific and consistent within birds. In all cases, reducing free income at a fixed wage raises labor supply. Raising the wage at a fixed level of G (i.e. an uncompensated wage increase) yields a backward-bending labor supply curve....
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- Fall '09
- Supply And Demand, American Economic Review, wage increase, Animal Workers