References & Citations
Economics > General Economics
Title: Coarse Wage-Setting and Behavioral Firms
(Submitted on 2 Jun 2022 (v1), revised 25 Jul 2022 (this version, v2), latest version 26 Mar 2024 (v5))
Abstract: This paper proposes coarse wage-setting as an explanation for why wages tend to cluster at round numbers. Using data on the contracted salaries of 280 million new hires from Brazil, I first establish that the distribution of salaries presents stark bunching at round numbers. In the data, more than a third of all workers are hired at a round-numbered salary. Reduced-form findings reveal that firms that tend to hire workers at round-numbered salaries are less sophisticated in observable characteristics (e.g., they are smaller and have less hiring experience) and, conditional on firm sophistication, experience worse outcomes (e.g., they have lower growth and survival rates). Motivated by these findings, I develop a wage-posting model in which optimization costs lead to the adoption of coarse wage-setting and provide evidence supporting three predictions of the model using two research designs. Finally, I quantify some consequences of coarse wage-setting for relevant economic outcomes.
Submission history
From: German Reyes [view email][v1] Thu, 2 Jun 2022 15:56:31 GMT (12373kb,D)
[v2] Mon, 25 Jul 2022 19:16:27 GMT (12308kb,D)
[v3] Sat, 31 Dec 2022 00:12:36 GMT (12899kb,D)
[v4] Fri, 3 Nov 2023 16:46:47 GMT (5695kb,D)
[v5] Tue, 26 Mar 2024 18:07:07 GMT (5113kb,D)
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