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Can Policy Interact with Culture? Minimum Wage and the Quality of Labor Relations

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Author Info
Philippe Aghion
Yann Algan
Pierre Cahuc

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Abstract

Can public policy interfere with culture, such as beliefs and norms of cooperation? We investigate this question by evaluating the interactions between the State and the Civil Society, focusing on the labor market. International data shows a negative correlation between union density and the quality of labor relations on one hand, and state regulation of the minimum wage on the other hand. To explain this relation, we develop a model of learning of the quality of labor relations. State regulation crowds out the possibility for workers to experiment negotiation and learn about the true cooperative nature of participants in the labor market. This crowding out effect can give rise to multiple equilibria: a "good" equilibrium characterized by strong beliefs in cooperation, leading to high union density and low state regulation; and a "bad" equilibrium, characterized by distrustful labor relations, low union density and strong state regulation of the minimum wage. We then use surveys on social attitudes and unionization behavior to document the relation between minimum wage legislation and the beliefs about the scope of cooperation in the labor market.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14327.

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Date of creation: Sep 2008
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Handle: RePEc:nbr:nberwo:14327

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Find related papers by JEL classification:
J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Algan, Yann & Cahuc, Pierre, 2007. "Social Attitudes and Economic Development: An Epidemiological Approach," CEPR Discussion Papers 6403, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. David Neumark & William Wascher, 2004. "Minimum wages, labor market institutions, and youth employment: A cross-national analysis," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 57(2), pages 223-248, January. [Downloadable!] (restricted)
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  3. Piketty, Thomas, 1995. "Social Mobility and Redistributive Politics," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 551-84, August. [Downloadable!] (restricted)
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  4. Herwig Immervoll, 2007. "Minimum Wages, Minimum Labour Costs and the Tax Treatment of Low-wage Employment," OECD Social, Employment and Migration Working Papers 46, OECD, Directorate for Employment, Labour and Social Affairs. [Downloadable!]
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  5. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2006. "Does Culture Affect Economic Outcomes?," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 23-48, Spring.
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  6. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "The Role of Social Capital in Financial Development," American Economic Review, American Economic Association, vol. 94(3), pages 526-556, June. [Downloadable!]
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  7. Bisin, Alberto & Verdier, Thierry, 2001. "The Economics of Cultural Transmission and the Dynamics of Preferences," Journal of Economic Theory, Elsevier, vol. 97(2), pages 298-319, April. [Downloadable!] (restricted)
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  8. Naylor, Robin & Cripps, Martin, 1993. "An economic theory of the open shop trade union," European Economic Review, Elsevier, vol. 37(8), pages 1599-1620, December. [Downloadable!] (restricted)
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  9. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2007. "Social Capital as Good Culture," Economics Working Papers ECO2007/57, European University Institute. [Downloadable!]
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  10. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2008. "Long Term Persistence," Economics Working Papers ECO2008/30, European University Institute. [Downloadable!]
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  11. Philippe Aghion & Yann Algan & Pierre Cahuc & Andrei Shleifer, 2009. "Regulation and Distrust," NBER Working Papers 14648, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. La Porta, Rafael, et al, 1997. "Trust in Large Organizations," American Economic Review, American Economic Association, vol. 87(2), pages 333-38, May. [Downloadable!] (restricted)
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  13. Corneo, Giacomo, 1995. "Social custom, management opposition, and trade union membership," European Economic Review, Elsevier, vol. 39(2), pages 275-292, February. [Downloadable!] (restricted)
  14. Roland Bénabou & Jean Tirole, 2006. "Belief in a Just World and Redistributive Politics," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 699-746, May. [Downloadable!] (restricted)
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  15. Raquel Fernandez & Alessandra Fogli, 2005. "Culture: an empirical investigation of beliefs, work, and fertility," Staff Report 361, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  16. Booth, Alison L & Chatterji, Monojit, 1993. "Reputation, Membership and Wages in Open Shop Trade Union," Oxford Economic Papers, Oxford University Press, vol. 45(1), pages 23-41, January. [Downloadable!] (restricted)
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  19. Booth, Alison L, 1985. "The Free Rider Problem and a Social Custom Model of Trade Union Membership," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 253-61, February. [Downloadable!] (restricted)
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  21. Akerlof, George A, 1980. "A Theory of Social Custom, of Which Unemployment May be One Consequence," The Quarterly Journal of Economics, MIT Press, vol. 94(4), pages 749-75, June. [Downloadable!] (restricted)
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  22. David Neumark & William L. Wascher, 2008. "Minimum Wages," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262141027.
  23. Naylor, Robin, 1989. "Strikes, Free Riders, and Social Customs," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 771-85, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jean-Baptiste Michau, 2009. "Unemployment Insurance and Cultural Transmission: Theory and Application to European Unemployment," CEP Discussion Papers dp0936, Centre for Economic Performance, LSE. [Downloadable!]
  2. Francesco Giavazzi & Fabio Schiantarelli & Michel Serafinelli, 2009. "Culture, Policies and Labor Market Outcomes," Boston College Working Papers in Economics 714, Boston College Department of Economics, revised 13 Nov 2009. [Downloadable!]
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