Routledge Dictionary of Economics, Second Edition
backward-bending labour supply curve (J3)
A curve plotting the supply of labour against wage rates which becomes negatively sloped at higher wage rates as proportionately less labour is supplied. This phenomenon is caused by the relative size of the INCOME and SUBSTITUTION EFFECTS of the wage rate change.
As an increase in the wage rate also represents an increase in the price of leisure, this price effect can be divided into a substitution effect (the effect on the number of hours of leisure chosen of an increase in its price) and an income effect (the effect of an increased wage rate that a given income is reached with fewer hours of work—in the figure, beyond point A higher real wage discourages workers from supplying more hours of work). A negative income effect greater than zero or a positive substitution effect will produce the backward bend in the labour supply curve.
References
Buchanan, J.M. (1971) ‘The back-bending supply curve of labour: an exampleof doctrinal retrogression’, History of political Economy 3:383–90.
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