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Civil society and the state: the interplay between cooperation and minimum wage regulation

Author

Listed:
  • Philippe Aghion

    (Harvard University)

  • Pierre Cahuc

    (X - École polytechnique, ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique, CREST - Centre de Recherche en Economie et Statistique [Bruz] - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz])

  • Yann Algan

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPREMAP - Centre pour la recherche économique et ses applications - ECO ENS-PSL - Département d'économie de l'ENS-PSL - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres)

Abstract

In a cross-section of countries, state regulation of labor markets is negatively correlated with the quality of labor relations. In this paper, we argue that these facts reflect different ways of regulating labor markets, either through the state or through the civil society, depending on the degree of cooperation in the economy. We rationalize these facts with a model of learning of the quality of labor relations. Distrustful labor relations lead to low unionization and high demand for direct state regulation of wages. In turn, state regulation crowds out the possibility for workers to experiment negotiation and learn about the potential cooperative nature of labor relations. This crowding out effect can give rise to multiple equilibria: a "good" equilibrium characterized by cooperative labor relations and high union density, leading to low state regulation; and a "bad" equilibrium, characterized by distrustful labor relations, low union density, and strong state regulation of the minimum wage

Suggested Citation

  • Philippe Aghion & Pierre Cahuc & Yann Algan, 2011. "Civil society and the state: the interplay between cooperation and minimum wage regulation," SciencePo Working papers Main hal-03384669, HAL.
    • Handle: RePEc:hal:spmain:hal-03384669
    DOI: 10.1111/j.1542-4774.2010.01004.x
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    References listed on IDEAS

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