. Why might a labor supply curve be backward bending?
A backward-bending supply curve for labor may occur when the income effect of an increase in the wage rate dominates the substitution effect. Labor supply decisions are made by individuals choosing the most satisfying combination of work and other (leisure) activities. With a larger income, the individual can afford to work fewer hours: the income effect. As the wage rate increases, the value of leisure time (the opportunity cost of leisure) increases, thus inducing the individual to work longer hours: the substitution effect. Because the two effects work in opposite directions, the shape of an individual’s labor supply curve depends on the individual’s preferences for income, consumption, and leisure.