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Price Discovery in Labor Markets: Why Do Firms Say They Cannot Find Workers?

Author

Listed:
  • Benjamin Friedrich
  • Michal Zator
  • Alison Zhao

Abstract

Why do firms report that they cannot find workers instead of preemptively raising wages? Using German administrative data, we show labor-constrained firms pay lower wages and quasi-exogenous wage increases alleviate constraints, consistent with monopsony. Yet constrained firms' delayed wage increases point beyond this mechanism. We develop a dynamic matching model combining wage-setting power with incomplete information and downward wage rigidity. Consistent with the model, firms raise wages when initial wage plans prove too low, especially for peripheral occupations, and face constraints after wage shocks to adjacent sectors, suggesting that firms' inaccurate beliefs and learning about market wages shape labor constraints.

Suggested Citation

  • Benjamin Friedrich & Michal Zator & Alison Zhao, 2026. "Price Discovery in Labor Markets: Why Do Firms Say They Cannot Find Workers?," RFBerlin Discussion Paper Series 26215, ROCKWOOL Foundation Berlin (RFBerlin).
    • Handle: RePEc:crm:wpaper:26215
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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