Essays on wage bargaining, unions and inflation, and alternative theories of labor supply

The dissertation is divided into two parts: the first investigates coordination failures that arise in economies with decentralized wage setting and their impact on macroeconomic outcomes, while the second is a microeconomic study of labor supply using a survey of cab drivers in Singapore. Part I comprises an empirical chapter, titled The Effect of Central Bank Independence and Union Concentration on Inflation and Unemployment in OECD Countries, and a theoretical chapter on The Macroeconomic Impact of Incentive -Based Worker-Choice Wages. In the empirical paper, panel data from 10 OECD countries is used to test the hypothesis that differences in monetary and wage institutions explain a significant fraction of the variations in inflation and unemployment across otherwise similar economies. The findings are robust to the use of different estimators and across various assumptions on the structure of error terms, and are then compared with the predictions made by recent theoretical models. The theoretical paper presents a novel scheme for paying out wages which internalizes the social cost of wage pushing by unions through prospective monetary rewards. The properties of such a scheme are demonstrated using a partial equilibrium model with rational expectations and a general equilibrium model with adaptive expectations. Unlike its predecessors like tax-based incomes policies, the implementation of the proposed scheme is decentralized with low monitoring and enforcement costs. In part two (chapter three) of the dissertation, data from a custom-designed survey of cab drivers in Singapore is used to test two competing labor supply hypotheses: the neoclassical-based intertemporal or life-cycle model and the target income model. The special characteristics of the taxi driving profession---drivers being able to choose their daily labor supply and wage rates varying day to day due to weather and other factors---allows an unusually clean test of the response of hours worked to transitory wage changes. The results, like those from an earlier study of New York City cab drivers, are much more consistent with the target income model, with estimated wage elasticities being persistently negative, even after correcting for measurement error using instrumental variables.