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 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
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:	01 Sep 2025 03:15
URI:	http://eprints.lse.ac.uk/id/eprint/128487

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