Scandinavian Working Papers in Economics

Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics

No 5/2025: Firms’ Beliefs About Wage Setting

Antoine Bertheau () and Christian Philip Hoeck ()
Additional contact information
Antoine Bertheau: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH, Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Christian Philip Hoeck: Dept. of Economics, University of Copenhagen, Postal: University of Copenhagen, Department of Economics, Øster Farimagsgade 5, Bygning 26, 1353 København K, Denmark

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.

Keywords: Wage dispersion; firm information frictions; biased beliefs

JEL-codes: D83; J01; J31; J42; M52

Language: English

56 pages, March 6, 2025

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