Price Discovery in Labor Markets: Why Do Firms Say They Cannot Find Workers?

Benjamin Friedrich, Michal Zator and Alison Zhao

No 26215, RFBerlin Discussion Paper Series from ROCKWOOL Foundation Berlin (RFBerlin)

Abstract: Why do firms report that they cannot find workers instead of preemptively raising wages? Using German administrative data, we show labor-constrained firms pay lower wages and quasi-exogenous wage increases alleviate constraints, consistent with monopsony. Yet constrained firms' delayed wage increases point beyond this mechanism. We develop a dynamic matching model combining wage-setting power with incomplete information and downward wage rigidity. Consistent with the model, firms raise wages when initial wage plans prove too low, especially for peripheral occupations, and face constraints after wage shocks to adjacent sectors, suggesting that firms' inaccurate beliefs and learning about market wages shape labor constraints.

Keywords: Hiring difficulties; wage adjustments; outside options; information frictions (search for similar items in EconPapers)
JEL-codes: D83 E24 J23 J31 M51 (search for similar items in EconPapers)
Date: 2026-08
New Economics Papers: this item is included in nep-bec, nep-eur, nep-hrm and nep-lma
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Persistent link: https://EconPapers.repec.org/RePEc:crm:wpaper:26215

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