AP MicroeconomicsLabor Economics
Backward-Bending Labor Supply Curve
The backward-bending labor supply curve shows hours worked rising with wages at first, then falling once the income effect of higher wages outweighs the substitution effect.
A wage increase has two opposing effects on an individual's hours. The substitution effect makes leisure more costly (forgone wages), encouraging more work; the income effect makes the worker richer, encouraging more leisure. At low wages the substitution effect dominates and the curve slopes up, but at high wages the income effect can dominate, so further raises lead to fewer hours and the curve bends backward.