Monopsony and Employer Misoptimization Explain Why Wages Bunch at Round Numbers

S-Tier
Journal: American Economic Review
Year: 2025
Volume: 115
Issue: 8
Pages: 2689-2721

Authors (3)

Arindrajit Dube (not in RePEc) Alan Manning (London School of Economics (LS...) Suresh Naidu (not in RePEc)

Score contribution per author:

2.681 = (α=2.01 / 3 authors) × 4.0x S-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

We show that administrative hourly wage data exhibit considerable bunching at round numbers. We run two experiments randomizing wages around $0.10 and $1.00 to experimentally measure left-digit bias for identical tasks on Amazon Mechanical Turk; we fail to find any evidence of discontinuity in the labor supply function at round numbers 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.

Technical Details

RePEc Handle
repec:aea:aecrev:v:115:y:2025:i:8:p:2689-2721
Journal Field
General
Author Count
3
Added to Database
2026-01-25