Assumptions
- Workers choose their hours.
- Workers are homogeneous.
- There are no contractual obligations.
- Workers are utility maximising agents.
So as we can see from these assumptions, this condition is rare in aggregate under real world conditions, though at any time, individual workers may have a personally backwards bending labour supply curve. Early retirement can sometimes be considered an example of the phenomenon over an entire lifetime: a person with inherited wealth would be located at infinity and zero (as would an unemployed individual), as it may be that their standard of living could not be increased by any work whatsoever: a person in this situation will sometimes work as a form of recreation in itself.
Overtime can reduce or negate the effect of a backward bending labour supply curve, by increasing wages only for hours worked beyond a certain amount. That increases the substitution effect at high labour supply but does not increase the countervailing income effect by as much as a higher flat wage rate would. This can cause workers to work more hours than they would under any flat wage rate, high or low.
Also, the graph is not to scale and reflects only a small portion at the far end of an individual's supply curve of labour and then only at a point in time. In the real world, one can think of jobs that will pay a lot but require extra long work weeks. Workers may choose such a job for a while, but as their lives changes, assets build, and family or personal relationships develop, they might opt for much less pay to have more regular hours. That also accounts for shift premiums to induce workers to work less desirable shifts.
Read more about this topic: Backward Bending Supply Curve Of Labour
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