Worker Beliefs About Outside Options

Simon Jäger, Christopher Roth, Nina Roussille and Benjamin Schoefer

No 29623, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Standard labor market models assume that workers hold accurate beliefs about the external wage distribution, and hence their outside options with other employers. We test this assumption by comparing German workers’ beliefs about outside options with objective benchmarks. First, we find that workers wrongly anchor their beliefs about outside options on their current wage: workers that would experience a 10% wage change if switching to their outside option only expect a 1% change. Second, workers in low-paying firms underestimate wages elsewhere. Third, in response to information about the wages of similar workers, respondents correct their beliefs about their outside options and change their job search and wage negotiation intentions. Finally, we analyze the consequences of anchoring in a simple equilibrium model. In the model, anchored beliefs keep overly pessimistic workers stuck in low-wage jobs, which gives rise to monopsony power and labor market segmentation.

JEL-codes: D91 E03 E24 J3 J31 J42 J6 (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-hrm, nep-lma and nep-mac
Note: EFG LS PE PR
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Citations: View citations in EconPapers (6)

Published as Simon Jäger & Christopher Roth & Nina Roussille & Benjamin Schoefer, 2024. "Worker Beliefs About Outside Options," The Quarterly Journal of Economics, vol 139(3), pages 1505-1556.

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Journal Article: Worker Beliefs About Outside Options* (2024)
Working Paper: Worker Beliefs About Outside Options (2022)
Working Paper: Worker Beliefs about Outside Options (2022)
Working Paper: Worker Beliefs About Outside Options (2022)
Working Paper: Worker Beliefs about Outside Options (2021)
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