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What should account for a backward-bending labor supply curve?

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lilylee | Student, College Freshman | (Level 1) Salutatorian

Posted June 6, 2013 at 12:33 AM via web

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What should account for a backward-bending labor supply curve?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted June 6, 2013 at 12:48 AM (Answer #1)

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The reason for the shape of the labor supply curve has to do with the fact that labor becomes more appealing as wages rise up to a certain point, but then it becomes less appealing once wages are very high.  On a graph where the horizontal axis is hours worked and the vertical axis is the wage level, this results in a backward-bending curve.

When wages are very low, people will work very little.  It is not really worth their while to go to work in such a situation.  But then, as the wages rise, they will start working.  They will rapidly increase their hours because they need the money and because they are encouraged to work more as the work comes to be better-paid.  Therefore, the curve will bow outwards along the horizontal axis.

But this will only continue up to a certain point.  Once the wages become high enough, people lose their desire to work long hours.  If you are getting a really high salary, you might only want to work a few hours.  Once you have done that, you have made enough money and your leisure time is worth more to you than the extra money that you would make.  Thus, after a certain point, the curve moves back towards the vertical axis. 

Please follow this link to see this in graphic form.

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