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Firms’ Beliefs About Wage Setting

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Abstract

This paper yields new insights into why similar workers are paid differently by surveying a representative sample of Danish firms and linking responses to administrative data. We find that a substantial minority of firms, about 18 percent, have inaccurate beliefs about their position in the wage distribution. Inaccurate beliefs are more likely to occur in smaller firms. To study the implications of firms’ inaccurate beliefs, we build a simple model with monopsonistic firms. Using our survey, we elicit firms’ motives for setting high wages. The dominant motive aligns with wage-posting models, i.e., retaining and attracting new employees. The least common motive is compensating for negative job characteristics.

Suggested Citation

  • Bertheau, Antoine & Hoeck, Christian Philip, 2025. "Firms’ Beliefs About Wage Setting," Discussion Paper Series in Economics 5/2025, Norwegian School of Economics, Department of Economics.
    • Handle: RePEc:hhs:nhheco:2025_005
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    File URL: https://openaccess.nhh.no/nhh-xmlui/handle/11250/3182213
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    More about this item

    Keywords

    Wage dispersion; firm information frictions; biased beliefs;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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