Monopsony and employer mis-optimization explain why wages bunch at round numbers

Dube, Arindrajit, Manning, Alan ORCID: 0000-0002-7884-3580 and Naidu, Suresh (2025) Monopsony and employer mis-optimization explain why wages bunch at round numbers. American Economic Review. ISSN 0002-8282 (In Press)

Text (wagebunching-1) - Accepted Version Pending embargo until 1 January 2100. Available under License Creative Commons Attribution. Download (1MB)

Abstract

We show that administrative hourly wage data exhibits considerable bunching at round numbers. We run two experiments, randomizing wages around 10 cents and $1.00, to experimentally measure left-digit bias for identical tasks on Amazon Mechanical Turk, and fail to find any evidence of discontinuity in the labor supply function at round number, despite estimating a considerable degree of monopsony. We replicate these results in administrative worker-firm hourly wage data from Oregon. We can rule out inattention estimates found in the behavioral product market literature. We provide evidence that firms “misoptimize" wage-setting. More monopsony requires less employer misoptimization to explain bunching

Item Type:	Article
Additional Information:	© 2025 The Author
Divisions:	Economics
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor
JEL classification:	J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J30 - General J - Labor and Demographic Economics > J4 - Particular Labor Markets > J42 - Monopsony; Segmented Labor Markets D - Microeconomics > D3 - Distribution > D30 - General
Date Deposited:	19 Jun 2025 09:30
Last Modified:	19 Jun 2025 09:33
URI:	http://eprints.lse.ac.uk/id/eprint/128487

Actions (login required)

View Item