Monopsony and employer misoptimization explain why wages bunch at round numbers

Arindrajit Dube, Alan Manning and Suresh Naidu

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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

JEL-codes: J22 J42 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2025-08-31
New Economics Papers: this item is included in nep-bec and nep-com
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Published in American Economic Review, 31, August, 2025, 115(8), pp. 2689 – 2721. ISSN: 0002-8282

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http://eprints.lse.ac.uk/128487/ Open access version. (application/pdf)

Related works:
Journal Article: Monopsony and Employer Misoptimization Explain Why Wages Bunch at Round Numbers (2025)
Working Paper: Monopsony and Employer Mis-optimization Explain Why Wages Bunch at Round Numbers (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:128487

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