We study firms’ beliefs about the wage distribution using a large-scale survey of managers in Germany linked to administrative data. 80% of managers believe their firm pays at least the median wage. Comparing beliefs to administrative wage data, we document pervasive and asymmetric misperceptions: most managers overestimate their firm’s relative wage and underestimate their workers’ outside options. The most-biased managers are also the most confident in their beliefs, and providing information about wages does not shift managerial beliefs. Beliefs are related to firm outcomes: biased firms have higher separation rates, slower employment growth, and recruit lower-ability workers. Embedding these findings in a general equilibrium search model, we show that systematic overestimation can lower aggregate wages and worsen the allocation of workers to firms, and derive conditions under which all workers are harmed.