Time Inconsistency and Free‐Riding in a Monetary Union

In monetary unions, a time inconsistency problem in monetary policy leads to a novel type of free‐rider problem in the setting of non‐monetary policies. The free‐rider problem leads union members to pursue lax non‐monetary policies that induce the monetary authority to generate high inflation. Free‐riding can be mitigated by imposing constraints on non‐monetary policies. Without a time inconsistency problem, the union has no free‐rider problem; then constraints on non‐monetary policies are unnecessary and possibly harmful. This theory is here detailed and applied to several non‐monetary policies: labor market policy, fiscal policy, and bank regulation.     

Factors Affecting Perceptions of Smallest Meaningful Pay Increases

This analysis suggests that an individual's current level of earnings may be one of the most important variables influencing his/her perception of incremental increases. Also, job difficulty (measured in terms of the average number of nights spent away from home per month on job-related duties) contributes significantly to the explanation of SMPI for both the organizational recognition group and the monetary considerations group. For the ORG group, the pay increase an individual finds meaningful appears to be influenced as well by job input factors such as total work experience, tenure in present job, tenure with present employer, and age. These results support the hypothesis that individuals with relatively high levels of training and experience and higher current earnings will tend to have higher expectations with regard to salary increases than will others, and that these expectations in turn will be reflected in higher thresholds of what is perceived as the smallest meaningful pay increase. Overall, much of the evidence supports the hypothesis that the predictors of SMPI will be different for the ORG and MCG groups. However, the relatively small size of the MCG sample and the associated problem of multicollinearity dictate caution in generalizing our results.* In addition, our study suffers from problems related to model underspecification, insofar as some of the explanatory variables identified in Lawler's model of pay satisfaction were not considered.