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Monopsony and employer misoptimization explain why wages bunch at round numbers

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  • Dube, Arindrajit
  • Manning, Alan
  • Naidu, Suresh

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

  • Dube, Arindrajit & Manning, Alan & Naidu, Suresh, 2025. "Monopsony and employer misoptimization explain why wages bunch at round numbers," LSE Research Online Documents on Economics 128487, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:128487
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    Cited by:

    1. Bas Scheer & Wiljan van den Berge & Maarten Goos & Alan Manning & Anna Salomons, 2022. "Alternative Work Arrangements and Worker Outcomes: Evidence from Payrolling," CPB Discussion Paper 435, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Cross, Jeffrey & Zhang, Guangli, 2024. "Focal points for giving," Journal of Economic Psychology, Elsevier, vol. 102(C).
    3. Amodio, Francesco & de Roux, Nicolás, 2021. "Labor Market Power in Developing Countries: Evidence from Colombian Plants," CEPR Discussion Papers 16180, Centre for Economic Policy Research.
    4. Matthew S. Johnson & Daniel Schwab & Patrick Koval, 2022. "Legal Protection Against Retaliatory Firing Improves Workplace Safety," Working Papers 2203, College of the Holy Cross, Department of Economics.
    5. Lehner, Lukas & Parolin, Zachary & Pignatti, Clemente & Pintro Schmitt, Rafael, 2024. "Monopsony Power and Poverty: The Consequences of Walmart Supercenter Openings," INET Oxford Working Papers 2024-07, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    6. Clémence Berson & Raphaël Lardeux & Claire Lelarge, 2021. "The Cognitive Load of Financing Constraints: Evidence from Large-Scale Wage Surveys," Working papers 836, Banque de France.
    7. Chengyuan Hua, 2025. "Coarse Salary-Setting and Behavioral Teams," Working Papers 25-05, Department of Economics, West Virginia University.
    8. Ellora Derenoncourt & David Weil, 2024. "Voluntary Minimum Wages," Working Papers 333, Princeton University, Department of Economics, Center for Economic Policy Studies..
    9. Erich Battistin & Agar Brugiavini & Enrico Rettore & Guglielmo Weber, 2009. "The Retirement Consumption Puzzle: Evidence from a Regression Discontinuity Approach," American Economic Review, American Economic Association, vol. 99(5), pages 2209-2226, December.
    10. Anna Sokolova & Todd Sorensen, 2021. "Monopsony in Labor Markets: A Meta-Analysis," ILR Review, Cornell University, ILR School, vol. 74(1), pages 27-55, January.
    11. David Autor & Arindrajit Dube & Annie McGrew, 2023. "The unexpected compression: Competition at work in the low wage labor market," POID Working Papers 076, Centre for Economic Performance, LSE.
    12. Douglas A. Webber, 2018. "Employment Adjustment Over the Business Cycle: The Impact of Competition in the Labor Market," DETU Working Papers 1806, Department of Economics, Temple University.
    13. Andrew Weaver, 2022. "Who Has Trouble Hiring? Evidence from a National IT Survey," ILR Review, Cornell University, ILR School, vol. 75(3), pages 608-637, May.
    14. Breunig, Robert & Deutscher, Nathan & Hamilton, Steven, 2024. "Rounded Up: Using round numbers to identify tax evasion," Journal of Public Economics, Elsevier, vol. 238(C).
    15. Patrick M. Kline, 2025. "Labor Market Monopsony: Fundamentals and Frontiers," NBER Working Papers 33467, National Bureau of Economic Research, Inc.
    16. Duch-Brown, Néstor & Gomez-Herrera, Estrella & Mueller-Langer, Frank & Tolan, Songül, 2022. "Market power and artificial intelligence work on online labour markets," Research Policy, Elsevier, vol. 51(3).

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    More about this item

    JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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