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Monopsony and Employer Misoptimization Explain Why Wages Bunch at Round Numbers

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  • Arindrajit Dube
  • Alan Manning
  • Suresh Naidu

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.

Suggested Citation

  • Arindrajit Dube & Alan Manning & Suresh Naidu, 2025. "Monopsony and Employer Misoptimization Explain Why Wages Bunch at Round Numbers," American Economic Review, American Economic Association, vol. 115(8), pages 2689-2721, August.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:8:p:2689-2721
    DOI: 10.1257/aer.20200678
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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