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

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  • Pierre Cahuc

    (Department of Economics, Ecole Polytechnique)

  • Philippe Aghion

    (Department of Economics, Harvard University)

  • Yann Algan

    (Département d'économie)

Abstract

Can public policy interfere with culture, such as beliefs and norms of cooperation? We investigate his 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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Bibliographic Info

Paper provided by Sciences Po in its series Sciences Po publications with number 3680.

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Date of creation: Sep 2008
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Handle: RePEc:spo:wpmain:info:hdl:2441/8882

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Keywords: social capital; quality of labor relations; trade unions; minimum wage;

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References

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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
  2. Conservatives - support unions!
    by chris dillow in Stumbling and Mumbling on 2012-09-10 13:14:15
  3. [??]????????????
    by himaginary in himaginaryの日記 on 2012-11-26 08:00:00
  4. Neoliberalism's unintended consequences
    by chris dillow in Stumbling and Mumbling on 2013-09-25 11:18:24
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Cited by:
  1. 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.
  2. Dan Andrews & Aida Caldera Sánchez & Åsa Johansson, 2011. "Towards a Better Understanding of the Informal Economy," OECD Economics Department Working Papers 873, OECD Publishing.
  3. Jean-Baptiste Michau, 2013. "Unemployment Insurance And Cultural Transmission: Theory And Application To European Unemployment," Journal of the European Economic Association, European Economic Association, vol. 11(6), pages 1320-1347, December.
  4. 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).
  5. Blake, Hélène & Sangnier, Marc, 2011. "Senior activity rate, retirement incentives, and labor relations," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 5(8), pages 1-32.
  6. Bauernschuster, Stefan & Falck, Oliver & Heblich, Stephan, 2010. "Social capital access and entrepreneurship," Munich Reprints in Economics 20137, University of Munich, Department of Economics.
  7. Giavazzi, Francesco & Schiantarelli, Fabio & Serafinelli, Michel, 2009. "Culture, Policies and Labor Market Outcomes," IZA Discussion Papers 4558, Institute for the Study of Labor (IZA).
  8. Nathan Nunn & Leonard Wantchekon, 2011. "The Slave Trade and the Origins of Mistrust in Africa," American Economic Review, American Economic Association, vol. 101(7), pages 3221-52, December.
  9. Gaston, Noel & Rajaguru, Gulasekaran, 2013. "International migration and the welfare state revisited," European Journal of Political Economy, Elsevier, vol. 29(C), pages 90-101.
  10. 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.

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