• Corpus ID: 249282638

Coarse Wage-Setting and Behavioral Firms

@inproceedings{Reyes2022CoarseWA,
  title={Coarse Wage-Setting and Behavioral Firms},
  author={German Jeremias Reyes},
  year={2022}
}

• G. Reyes
• Published 2 June 2022
• Economics

This paper shows that the bunching of wages at round numbers is partly driven by firm coarse wage-setting. Using data on 280 million new hires from Brazil, I first establish that salaries tend to cluster at round numbers. Then, I show that firms that tend to hire workers at round-numbered salaries are less sophisticated and 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 three model predictions using two research designs. Finally, I examine some consequences of coarse wage-setting for relevant economic outcomes. ∗Department of Economics, Cornell University, 457 Uris Hall, Ithaca, NY 14853, United States (e-mail: [e-mail]). I thank especially my advisor Ted O’Donoghue for invaluable guidance. For helpful comments, I am grateful to Nava Ashraf, Levon Barseghyan, Michele Belot, Douglas Bernheim, Aviv Caspi, Zoe Cullen, Neel Datta, Stefano DellaVigna, Christa Deneault, Rebecca Deranian, Michael Grubb, Ori Heffetz, Guy Ishai, Patrick Kline, Philipp Kircher, David Laibson, Francesca Molinari, Ricardo PerezTruglia, Marcel Preuss, Alex Rees-Jones, Evan Riehl, Seth Sanders, Jason Somerville, Dmitry Taubinsky, David Wasser, participants in the Russell Sage Foundation summer institute in behavioral economics, participants in the Cornell behavioral economics group, and participants in the UC Berkeley psychology and economics group. Errors and omissions are my own. 1 ar X iv :2 20 6. 01 11 4v 3 [ ec on .G N ] 3 1 D ec 2 02 2