What happens Reservation wage if nonlabor income increases and why?

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2026-03-19 16:35

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If nonlabor income increases, the reservation wage typically rises. This is because a higher nonlabor income allows individuals to be more selective about the jobs they accept, as they can afford to wait for a job that meets their desired wage level. Consequently, individuals may demand a higher wage to compensate for the opportunity cost of forgoing their nonlabor income.

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