Coarse Wage-Setting and Behavioral Firms

Germán Reyes

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arXiv · 2206.01114

Coarse Wage-Setting and Behavioral Firms

Germán Reyes

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Abstract

This paper shows that the bunching of wages at round numbers is partly driven by firm coarse wage-setting. Using data from over 200 million new hires in Brazil, I first establish that contracted salaries tend to cluster at round numbers. Then, I show that firms that tend to hire workers at round-numbered salaries have worse market outcomes. Next, I develop a wage-posting model in which optimization costs lead to the adoption of coarse rounded wages and provide evidence supporting two model predictions using two research designs. Finally, I examine some consequences of coarse wage-setting for relevant economic outcomes.

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Germán Reyes. 2022-06-02. Coarse Wage-Setting and Behavioral Firms. https://arxiv.org/abs/2206.01114

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