Backward Bending Supply of Labor

The labor supply curve of an individual shows the relation between wage rate and the quantity of labor supplied measured in hours worked.

The reservation wage is the lowest wage at which a worker accepts a job.

Above this rate, the quantity of labor supplied increases with the increase in wage, reflecting a direct relationship between higher wages and increased work hours.

Consider Neil, an engineer whose initial response to rising wages is to work longer hours.

However, as the work hours increase beyond a point, he realizes that accepting the additional work hours would reduce his time spent on leisure activities such as watching television, which provides him with significant utility.

So, a stage comes where, despite further wage increases, Neil chooses not to increase his work hours or even reduce them, as it means sacrificing his valued leisure time.

For Neil and many others, there is a threshold beyond which higher wages no longer lead to an increase in labor supply. This may lead to a backward bending supply curve.