When it comes to income in particular, treating currency as the good, and time as the currency to turn it into a currency-demand driven curve will highlight the open market forces behind this phenomenon.
Each unit of currency(hereafter : dollar) earned has a marginal utility that is dependent on the dollars earned previously in the given time frame. Knowing this, it become evident that a pay increase directly increases marginal utility, but the distribution of that utility is clustered earlier in the day. This leads to a phenomenon where you achieve the same level of utility after fewer hours, and the remaining hours provide less marginal utility than they did before the raise. Overall utility is increased, and marginal utility of an hour of leisure can remain the same, which can lead to the lowered utility of the final hours being less than the marginal utility of the leisure time.
It's not irrational, or even terribly counter-intuitive, when you consider leisure time to be a consumed good, and treat currency as the substitute consumed good. In this case, supply is time (or hours of the day), and is perfectly inelastic and locked at 24 hours. This turns demand (measured as utility of the individual) into a comparison of 2 substitute goods: utility from earned currency, and utility from leisure time. The ideal intersect will end up shifting toward more leisure time and more overall utility as a result.