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

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  • Philippe Aghion
  • Yann Algan
  • Pierre Cahuc

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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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Unions vs legislation
    by chris dillow in Stumbling and Mumbling on 2011-12-10 12:27:47
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    by chris dillow in Stumbling and Mumbling on 2012-09-10 13:14:15
  3. [??]????????????
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Cited by:
  1. Blake, Hélène & Sangnier, Marc, 2011. "Senior activity rate, retirement incentives, and labor relations," Economics Discussion Papers 2011-3, Kiel Institute for the World Economy.
  2. Boockmann, Bernhard, 2010. "The Combined Employment Effects of Minimum Wages and Labor Market Regulation: A Meta-Analysis," IZA Discussion Papers 4983, Institute for the Study of Labor (IZA).
  3. Jean-Baptiste Michau, 2009. "Unemployment Insurance and Cultural Transmission: Theory and Application to European Unemployment," CEP Discussion Papers dp0936, Centre for Economic Performance, LSE.
  4. Giavazzi, Francesco & Schiantarelli, Fabio & Serafinelli, Michel, 2009. "Culture, Policies and Labor Market Outcomes," CEPR Discussion Papers 7536, C.E.P.R. Discussion Papers.
  5. Philippe Aghion & Heike Harmgart & Natalia Weisshaar, 2010. "Fostering growth in CEE countries: a country-tailored approach to growth policy," Working Papers 118, European Bank for Reconstruction and Development, Office of the Chief Economist.
  6. Dan Andrews & Aida Caldera Sánchez & Åsa Johansson, 2011. "Towards a Better Understanding of the Informal Economy," OECD Economics Department Working Papers 873, OECD Publishing.
  7. Gaston, Noel & Rajaguru, Gulasekaran, 2013. "International migration and the welfare state revisited," European Journal of Political Economy, Elsevier, vol. 29(C), pages 90-101.
  8. Paolo Pinotti, 2009. "Trust and Regulation: Addressing a Cultural Bias," Temi di discussione (Economic working papers) 721, Bank of Italy, Economic Research and International Relations Area.
  9. Nathan Nunn & Leonard Wantchekon, 2009. "The Slave Trade and the Origins of Mistrust in Africa," NBER Working Papers 14783, National Bureau of Economic Research, Inc.

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