Monopsony and employer misoptimization explain why wages bunch at round numbers

Dube, Arindrajit, Manning, Alan ORCID: 0000-0002-7884-3580 and Naidu, Suresh (2025) Monopsony and employer misoptimization explain why wages bunch at round numbers. American Economic Review, 115 (8). 2689 – 2721. ISSN 0002-8282

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Abstract

We show that administrative hourly wage data exhibit considerable bunching at round numbers. We run two experiments randomizing wages around $0.10 and $1.00 to experimentally measure left-digit bias for identical tasks on Amazon Mechanical Turk; we fail to find any evidence of discontinuity in the labor supply function at round numbers 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
Divisions:	Economics
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor
JEL classification:	J - Labor and Demographic Economics > J4 - Particular Labor Markets > J42 - Monopsony; Segmented Labor Markets J - Labor and Demographic Economics > J2 - Time Allocation, Work Behavior, and Employment Determination and Creation; Human Capital; Retirement > J22 - Time Allocation and Labor Supply
Date Deposited:	19 Jun 2025 09:30
Last Modified:	17 Dec 2025 08:59
URI:	http://eprints.lse.ac.uk/id/eprint/128487

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