Coarse Wage-Setting and Behavioral Firms

Germán Reyes

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: This paper shows that the bunching of wages at round numbers is partly driven by firm coarse wage-setting. Using data from over 200 million new hires in Brazil, I first establish that contracted salaries tend to cluster at round numbers. Then, I show that firms that tend to hire workers at round-numbered salaries are less sophisticated and have worse market outcomes. Next, I develop a wage-posting model in which optimization costs lead to the adoption of coarse rounded wages and provide evidence supporting two model predictions using two research designs. Finally, I examine some consequences of coarse wage-setting for relevant economic outcomes.

Keywords: Wage-setting, bunching at round numbers; behavioral firms (search for similar items in EconPapers)
JEL-codes: D22 D91 E24 (search for similar items in EconPapers)
Pages: 84
Date: 2024-01
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Working Paper: Coarse Wage-Setting and Behavioral Firms (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2024_492

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