Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/250624 
Year of Publication: 
2021
Series/Report no.: 
IZA Discussion Papers No. 14963
Publisher: 
Institute of Labor Economics (IZA), Bonn
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.
Subjects: 
wages
beliefs
bias
monopsony
GSOEP
IAB
JEL: 
D91
E03
E24
J3
J31
J42
J6
Document Type: 
Working Paper

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