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Coarse Salary-Setting and Behavioral Teams

Author

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  • Chengyuan Hua

    (West Virginia University)

Abstract

Among National Hockey League (NHL) player contracts signed in 2011-24, over 38% are divisible by $100,000. This paper shows that the bunching of NHL contracts at round numbers is partly driven by team coarse wage-setting. I first show that teams with more coarse contracts have worse team performance. Then, my empirical results validate two model predictions derived from a wage-setting model in which optimization costs lead to the adoption of rounded wages. With a novel measure of management quality, I document a negative relationship between management quality and coarse salary-setting. Next, I find that coarse salary-setting is associated with higher pay inequality. Finally, I do not identify spillover effects of changes in minimum salaries on coarse salary-setting as documented in the previous literature.

Suggested Citation

  • Chengyuan Hua, 2025. "Coarse Salary-Setting and Behavioral Teams," Working Papers 25-05, Department of Economics, West Virginia University.
    • Handle: RePEc:wvu:wpaper:25-05
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    File URL: https://researchrepository.wvu.edu/cgi/viewcontent.cgi?article=1256&context=econ_working-papers
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    Keywords

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    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • Z22 - Other Special Topics - - Sports Economics - - - Labor Issues

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