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CEU Economic Seminar Series: Worker Beliefs About Outside Options

CESS by Schoefer
Tuesday, December 13, 2022, 11:15 am – 12:30 pm

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. {This presentation will cover new material not yet reflected in the Dec 2021 draft we have circulated, mainly a new information experiment in which we provide respondents in a follow-up survey with tailored information about the external wage distribution, and study causal effects on their beliefs and intended labor market behavior.}