American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Monopsony and Employer Misoptimization Explain Why Wages Bunch at Round Numbers
American Economic Review
(pp. 2689–2721)
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.Citation
Dube, Arindrajit, Alan Manning, and Suresh Naidu. 2025. "Monopsony and Employer Misoptimization Explain Why Wages Bunch at Round Numbers." American Economic Review 115 (8): 2689–2721. DOI: 10.1257/aer.20200678Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- J22 Time Allocation and Labor Supply
- J31 Wage Level and Structure; Wage Differentials
- J42 Monopsony; Segmented Labor Markets