Equation (7.27) can be used to determine what happens to the gross real wage.

Consider what happens if the marginal tax rate on labour is increased, leaving all other taxes unchanged. For the given real consumer wage, labour supply is decreased and labour demand is unchanged. Consequently, unemployment is reduced. Some of the unemployed hours of labour are no longer supplied due to the disincentive effect of the higher marginal tax rate. This policy experiment has been illustrated in