Question

If wage increases what happens to our probability worker enters the labor force? By increasing our wage rate does this generate an income eff. also?

Answer 1

Here we are discussing about the dynamics occurred in labour market. Assume that the wages increased in the labour market due to some reasons. If the wage rate increased it will attract more workers to the market. Gradually the labour supply increased. Thus the employment rate reduced in the economy. On the other hand, the wage rate can influence the labour productivity also. Labour productivity can increased through high wage rate. While increasing the wage rate, the overall production structure can be changed. There is large share of entry of workers to the labour force. There is a high rate of hiring occurred. Hiring attract newly skilled and efficient workers to the market. This enhances the overall production.  
What effect occurred in workers consumption pattern due to increase in wage rate? The increase in wage rate generates two effects; income effect and substitution effect. Income effect means the workers get more income and they will become more active in the production process. The productivity of labour increased drastically. More workers attracted to the labour market. On the other hand, the substitution effect shows that in increasing wage rate leads a substitution between work and leisure. Most of the people prefer leisure over the work, because they get more income than before. So they become lazy and allotted there time for more leisure activities.