Working Paper: CEPR ID: DP16887
Authors: Simon Jäger; Christopher Roth; Nina Roussille; Benjamin Schoefer
Abstract: Workers wrongly anchor their beliefs about outside options on their current wage. In particular, low-paid workers underestimate wages elsewhere. We document this anchoring bias by eliciting workers’ beliefs in a representative survey in Germany and comparing them to measures of actual outside options in linked administrative labor market data. In an equilibrium model, such anchoring can give rise to monopsony and labor market segmentation. In line with the model, misperceptions are particularly pronounced among workers in low-wage firms. If workers had correct beliefs, at least 10% of jobs, concentrated in low-wage firms, would not be viable at current wages.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| workers' beliefs about outside options (J29) | labor market dynamics (J29) |
| misperceptions (D83) | labor market distortions (J48) |
| lack of accurate beliefs about outside options (D83) | wage markdowns (J31) |
| lack of accurate beliefs about outside options (D83) | market segmentation (M31) |
| workers anchor beliefs about outside options on current wage (J29) | underestimations of potential wage changes (J31) |
| misperceptions (D83) | systematic underestimation of potential wage gains (J31) |
| biased beliefs about outside options (D91) | search and bargaining behavior (C78) |
| accurate beliefs (D83) | viability of jobs in low-wage firms (J63) |