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Coarse Salary-Setting and Behavioral Teams

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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
    as

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    File URL: https://researchrepository.wvu.edu/cgi/viewcontent.cgi?article=1256&context=econ_working-papers
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    References listed on IDEAS

    as
    1. Emily Breza & Supreet Kaur & Yogita Shamdasani, 2018. "The Morale Effects of Pay Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(2), pages 611-663.
    2. 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.
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    5. Parshakov, Petr & Gasparetto, Thadeu & Votintseva, Nadezhda & Shakina, Elena, 2024. "Beyond the pitch: Exploring the role of beauty in soccer player salaries," Journal of Economic Psychology, Elsevier, vol. 101(C).
    6. Germán Reyes, 2024. "Coarse Wage-Setting and Behavioral Firms," CRC TR 224 Discussion Paper Series crctr224_2024_492, University of Bonn and University of Mannheim, Germany.
    7. Germ'an Reyes, 2022. "Coarse Wage-Setting and Behavioral Firms," Papers 2206.01114, arXiv.org, revised Mar 2024.
    8. Cheolbeom Park, 2023. "Optimal salary inequality for team performance: evidence from National Football League data," Applied Economics, Taylor & Francis Journals, vol. 55(24), pages 2773-2787, May.
    9. Dietl, Helmut M. & Mueller, Steffen Q. & Henriques Pereira, Marco & Lang, Markus, 2025. "Performance under pressure and its impact on compensation: Evidence from professional basketball," Journal of Economic Psychology, Elsevier, vol. 108(C).
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    More about this item

    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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