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

Author

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  • Philippe Aghion

    (Department of Economics, Harvard University)

  • Yann Algan

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Pierre Cahuc

    (X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris)

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.

Suggested Citation

  • Philippe Aghion & Yann Algan & Pierre Cahuc, 2008. "Can Policy Interact with Culture? Minimum Wage and the Quality of Labor Relations," SciencePo Working papers Main hal-00972820, HAL.
    • Handle: RePEc:hal:spmain:hal-00972820
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-00972820
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. [経済]保守派は組合を支持すべし
      by himaginary in himaginaryの日記 on 2012-11-26 14:00:00
    2. Unions vs legislation
      by chris dillow in Stumbling and Mumbling on 2011-12-10 18:27:47
    3. Conservatives - support unions!
      by chris dillow in Stumbling and Mumbling on 2012-09-10 18:14:15
    4. Neoliberalism's unintended consequences
      by ? in Stumbling and Mumbling on 2013-09-25 16:18:00
    5. Unions & productivity
      by ? in Stumbling and Mumbling on 2014-07-11 17:42:00
    6. Fairness, decentralization & capitalism
      by chris in Stumbling and Mumbling on 2015-08-15 17:47:41
    7. Inequality against freedom
      by chris in Stumbling and Mumbling on 2016-02-23 19:22:59
    8. Free markets need equality
      by chris in Stumbling and Mumbling on 2017-06-21 17:34:04
    9. The minimum wage dilemma
      by chris in Stumbling and Mumbling on 2021-09-28 13:29:01

    Citations

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    Cited by:

    1. LIU Yang & HAGIWARA Risa, 2020. "Labor Force Participation of Married Female Immigrants: Evidence from a Low Female-LFPR Host Country," Discussion papers 20019, Research Institute of Economy, Trade and Industry (RIETI).
    2. Bernhard Boockmann, 2010. "The Combined Employment Effects of Minimum Wages and Labor Market Regulation—a Meta-Analysis," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 61(Supplemen), pages 167-188.
    3. Blake, Hélène & Sangnier, Marc, 2011. "Senior activity rate, retirement incentives, and labor relations," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 5, pages 1-32.
    4. Bauernschuster, Stefan & Falck, Oliver & Heblich, Stephan, 2010. "Social capital access and entrepreneurship," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 821-833, December.
    5. Pierre Cahuc & Yann Algan, 2009. "Civic Virtue and Labor Market Institutions," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 111-145, January.
    6. Gaston, Noel & Rajaguru, Gulasekaran, 2013. "International migration and the welfare state revisited," European Journal of Political Economy, Elsevier, vol. 29(C), pages 90-101.
    7. repec:dau:papers:123456789/11159 is not listed on IDEAS
    8. Dan Andrews & Aida Caldera Sánchez & Åsa Johansson, 2011. "Towards a Better Understanding of the Informal Economy," OECD Economics Department Working Papers 873, OECD Publishing.
    9. Anna Lukiyanova & Nina Vishnevskaya, 2015. "The Decentralization of Minimum Wage Setting in Russia Economies," HSE Working papers WP BRP 90/EC/2015, National Research University Higher School of Economics.
    10. Eugenia Fotoniata & Thomas Moutos, 2010. "Greece: Neglect and Resurgence of Minimum Wage Policy," Chapters, in: Daniel Vaughan-Whitehead (ed.), The Minimum Wage Revisited in the Enlarged EU, chapter 7, Edward Elgar Publishing.
    11. Francesco Giavazzi & Fabio Schiantarelli & Michel Serafinelli, 2009. "Culture, Policies and Labor Market Outcomes," Working Papers 353, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    12. van Ypersele, Tanguy & Francois, Patrick, 2009. "Doux Commerces: Does Market Competition Cause Trust?," CEPR Discussion Papers 7368, C.E.P.R. Discussion Papers.
    13. Fernández, Raquel, 2010. "Does Culture Matter?," CEPR Discussion Papers 7965, C.E.P.R. Discussion Papers.
    14. Amy Peng & Louis N. Christofides, 2009. "Real Wage Chronology," Working Papers 011, Toronto Metropolitan University, Department of Economics.
    15. 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 3221-3252, December.
    16. 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.
    17. 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.
    18. Thomas Breda, 2010. "Firms' rents, workers' bargaining power and the union wage premium in France," Working Papers halshs-00564903, HAL.
    19. Simon Ress & Florian Spohr, 2022. "Was it worth it? The impact of the German minimum wage on union membership of employees," Economic and Industrial Democracy, Department of Economic History, Uppsala University, Sweden, vol. 43(4), pages 1699-1723, November.
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    More about this item

    Keywords

    social capital; quality of labor relations; trade unions; minimum wage;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)

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