Working Paper: NBER ID: w14327
Authors: Philippe Aghion; Yann Algan; Pierre Cahuc
Abstract: Can public policy interfere with culture, such as beliefs and norms of cooperation? We investigate this 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: Minimum Wage; Labor Relations; Social Capital; Union Density
JEL Codes: J01; J3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| stringent minimum wage regulations (J38) | lower levels of unionization (J59) |
| stringent minimum wage regulations (J38) | poorer quality of labor relations (J59) |
| lower levels of unionization (J59) | poorer quality of labor relations (J59) |
| low investments in labor relations (J58) | stricter minimum wage policies (J38) |
| high minimum wages (J38) | low union density (J51) |
| high minimum wages (J38) | eroding social capital (Z13) |
| low social capital (Z13) | high minimum wages (J38) |
| high social capital (Z13) | low minimum wages (J38) |