Firms’ Beliefs About Wage Setting

Antoine Bertheau () and Christian Philip Hoeck ()
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Antoine Bertheau: Norwegian School of Economics
Christian Philip Hoeck: University of Copenhagen

No 17762, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper yields new insights into why similar workers are paid differently by surveying a representative sample of Danish firms and linking responses to administrative data. We find that a substantial minority of firms, about 18 percent, have inaccurate beliefs about their position in the wage distribution. Inaccurate beliefs are more likely to occur in smaller firms. To study the implications of firms’ inaccurate beliefs, we build a simple model with monopsonistic firms. Using our survey, we elicit firms’ motives for setting high wages. The dominant motive aligns with wage-posting models, i.e., retaining and attracting new employees. The least common motive is compensating for negative job characteristics.

Keywords: firm information frictions; wage dispersion; biased beliefs (search for similar items in EconPapers)
JEL-codes: D83 J01 J31 J42 M52 (search for similar items in EconPapers)
Date: 2025-03
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