The "backward bending labour supply curve"

From an editorial in The Telegraph which, unsually, makes some good points:

Jeremy Hunt, Britain’s longest-serving health secretary, spent years fretting over health budgets and knows better than most how easily the NHS can swallow up extra funds without patients seeing a jot of difference if the money is badly targeted.

“The one thing the Government must do before it spends any of the money is make sure there is capacity in the NHS for that money to be used for what you want it to achieve. If you allocate £5 billion for extra staff, for example, but those extra staff don’t yet exist, that money will just vanish."

... Rishi Sunak, the Chancellor, allocated £20 billion of emergency funding to the NHS to cover the cost of Covid-19, of which £15 billion was actually spent. But according to the Nuffield Trust, only £2.7 billion of that was spent on staffing costs. Given that 60 to 70 per cent of hospital’s budgets are spent on staffing, questions are being asked about where the rest of the money went.

We already knew or could have guessed most of this, that's just to set the scene. Here's the interesting bit:

Another of the traps which Mr Blair fell into was in allowing spending increases to be swallowed up by pay rises. While doctors unquestionably deserve high salaries [that's their opinion], the brutal truth is that bumping up GPs’ pay packets does not translate to better patient care.

Almost nine in 10 salaried GPs work less than full time, and there is a danger (accepted in private by those in the health sector) that higher pay will make it financially viable for even more of them to cut their hours without being any worse off. Nor does extra pay across the board incentivise GPs to work in the most deprived communities, which often have the worst access to healthcare, translating into lower life expectancy.

This is an example of the 'backward bending labour curve'. From Lumen Learning, (scroll down to the section on Labour Supply):

To see how changes in wages affect the supply of labor, suppose wages rise. This increases the cost of leisure and causes the supply of labor to rise – this is the substitution effect, which states that as the relative price of one good increases, consumption of that good will decrease. However, there is also an income effect – an increased wage means higher income, and since leisure is a normal good, the quantity of leisure demanded will go up.

In general, at low wage levels the substitution effect dominates the income effect and higher wages cause an increase in the supply of labor.

At high incomes, however, the negative income effect could offset the positive substitution effect and higher wage levels could actually cause labor to decrease. A worker making $800/hour who receives a raise to $1200/hour may not have much use for the extra money and may choose to work less while maintaining the same standard of living, for example. This creates a supply curve that bends backwards, initially increasing with the wage rate but later decreasing.

I'm happy to say that this applies to me. Once I'd finished paying rent fees to private schools, I dropped to a four days a week and started paying in the max. to my pension fund, but I still have more disposable income than when they were at school (and enough to cover my modest lifestyle). That's largely an effect of our insane tax system, but it's nice to be on the winning side of it for once.