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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 exhibits considerable bunching at round numbers. We run two experiments, randomizing wages around 10 cents and $1.00, to experimentally measure left-digit bias for identical tasks on Amazon Mechanical Turk, and fail to find any evidence of discontinuity in the labor supply function at round number, 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. 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.
    3. Lehner, Lukas & Parolin, Zachary & Pignatti, Clemente & Schmitt, Rafael Pintro, 2024. "Monopsony Power and Poverty: The Consequences of Walmart Supercenter Openings," IZA Discussion Papers 17323, Institute of Labor Economics (IZA).
    4. Cross, Jeffrey & Zhang, Guangli, 2024. "Focal points for giving," Journal of Economic Psychology, Elsevier, vol. 102(C).
    5. Francesco Amodio & NicolÔøΩs de Roux, 2021. "Labor Market Power in Developing Countries: Evidence from Colombian Plants," Documentos CEDE 19267, Universidad de los Andes, Facultad de Economía, CEDE.
    6. David Autor & Arindrajit Dube & Annie McGrew, 2023. "The Unexpected Compression: Competition at Work in the Low Wage Labor Market," NBER Working Papers 31010, National Bureau of Economic Research, Inc.
    7. Ellora Derenoncourt & David Weil, 2024. "Voluntary Minimum Wages," Working Papers 333, Princeton University, Department of Economics, Center for Economic Policy Studies..
    8. 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.
    9. 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.
    10. 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.
    11. 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).
    12. 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.
    13. Breunig, Robert & Deutscher, Nathan & Hamilton, Steven, 2024. "Rounded Up: Using round numbers to identify tax evasion," Journal of Public Economics, Elsevier, vol. 238(C).
    14. 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.

    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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