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

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Listed author(s):
  • Aghion, Philippe
  • Algan, Yann
  • Cahuc, Pierre

Abstract

Can public policy affect culture, such as beliefs and norms of cooperation? We investigate this question by evaluating how state regulation of minimum wage interacts with unionization behavior and social dialogue. 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 that minimum wage legislation and union density do affect beliefs about the scope of cooperation in the labor market.

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Paper provided by CEPREMAP in its series CEPREMAP Working Papers (Docweb) with number 0801.

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Length: 55 pages
Date of creation: Jan 2008
Handle: RePEc:cpm:docweb:0801
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