Worker Beliefs About Outside Options
Benjamin Schoefer, Assistant Professor, Department of Economics, UC Berkeley.
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.
Benjamin Schoefer is Assistant Professor in the Department of Economics at the University of California, Berkeley. He is a Faculty Research Fellow of the NBER (Economic Fluctuations & Growth, Monetary, Public, Labor), a CEPR Research Affiliate (Monetary Economics and Fluctuations, Labour, Public), an IZA Research Fellow, and a CESifo Affiliate Member. His work has been published in the American Economic Review, the Journal of Public Economics, the Quarterly Journal of Economics, the Review of Economic Studies, and the Review of Economics and Statistics, among other journals. His most recent NBER working paper is "Worker Beliefs About Outside Options," co-authored with Simon Jäger, Christopher Roth, and Nina Roussille. Benjamin Schoefer earned his PhD in Economics at Harvard University, where he was a 2012-2013 Inequality & Social Policy Fellow.