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

Philippe Aghion, Yann Algan and Pierre Cahuc

No 3680, IZA Discussion Papers from Institute of Labor Economics (IZA)

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.

Keywords: trade unions; quality of labor relations; social capital; minimum wage (search for similar items in EconPapers)
JEL-codes: J30 J50 K00 (search for similar items in EconPapers)
Pages: 69 pages
Date: 2008-09
New Economics Papers: this item is included in nep-lab, nep-law, nep-ltv and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Published - revised version published as 'Civil Society and the State: The Interplay Between Cooperation and Minimum Wage Regulation' in: Journal of the European Economic Association, 2011, 9 (1), 3 - 42

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Working Paper: Can Policy Interact with Culture? Minimum Wage and the Quality of Labor Relations (2008)
Working Paper: Can Policy Interact with Culture? Minimum Wage and the Quality of Labor Relations (2008)
Working Paper: Can Policy Interact with Culture? Minimum Wage and the Quality of Labor Relations (2008)
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