Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Family Values and the Regulation of Labor Alberto Alesina
Yann Algan
(Harvard University)
(Science Po, OFCE)
Pierre Cahuc
Paola Giuliano
(Polytechnique, CREST)
(UCLA)
October 2009
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Introduction
Rigid labor markets are in part responsible for the high European unemployment from the eighties onward In some countries: strong opposition to what many economists would consider e¢ cient labor market reforms Why?
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
We argue that family values play a crucial role
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
What is the relation between family values and labor market regulation ? The e¢ ciency of ‡exible labor markets requires mobile workers Otherwise, …rms can take advantage of the immobility of workers and extract monopsony rents In cultures with strong family ties, moving away from home has utility costs Thus, individuals with strong family ties support regulated labor markets to reduce the monopsony power of …rms, even though they produce lower employment 4 / 54
Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
There are complementarities between the strength of family ties and the stringency of labor market regulation Weak family ties Strong family ties
‡exible labor markets rigid labor markets
This leads to two equilibria 1
2
Weak family ties and labor market ‡exibility (Nordic countries) Strong family ties and stringent labor market regulation (Southern European countries)
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
What can we explain ? On the positive side 1
2
why certain countries have more regulated labor markets than others strong inertia in labor market regulations due to intergenerational transmission of family values
On the normative side 1
2
why rigid labor markets with high unemployment are not necessarily less e¢ cient than ‡exible labor markets with low unemployment why it is so di¢ cult to reform labor markets in many especially Southern and Central European countries
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
About related research Cultural values and economic outcomes (Guiso, Sapienza and Zingales 2006, JEP, Fernandez and Fogli 2006, JEEA) Cultural values and institutions (Tabellini 2008, JEEA) Our approach: about family values and labor market regulation
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
1
The model
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
1 2
The model Family ties and the demand for labor market regulation
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
1 2 3
The model Family ties and the demand for labor market regulation Persistent e¤ects of family ties
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
The model The setup
There are two goods: labor and a numeraire good produced with labor Continuum of individuals of mass one Individuals are uniformly located on the [0, 1] line Identical, risk neutral and no preference for leisure Utility = consumption + valuation of family relations 3 stage static model
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Stage 1: At birth, each individual is located on the [0, 1] line, on a point where his parents live Individuals choose family values which can be 1 2
either with strong family ties or with low family ties
The choice of family values is irreversible Persons with weak family ties are indi¤erent between living in their location of birth or elsewhere
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
The share of individuals with strong family ties is denoted by σ Strong family ties yield utility ∆(σ) > 0 if immobile ∆(σ) if mobile ∆(σ), the valuation of strong family ties, increases with σ 1 2
social norms more in‡uent when more spread less opportunities of social interaction for weak family ties when σ increases
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Stage 2: People vote to choose labor market regulation according to the majority rule There are two possible types of labor market regulation 1 2
Labor market ‡exibility (i.e. laissez-faire) Regulation which comprises minimum wage job protection
Regulation entails deadweight losses which reduce the production of every worker
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Stage 3: In each location, there is a single …rm that o¤ers labor contracts When a worker is employed in his initial location, his productivity is drawn in the uniform distribution on the interval [0, 1] , once he has been hired All workers can …nd jobs with productivity 1 in locations di¤erent from their initial location
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
The model The solution
Model solved backward In stage 3, the labor market is either regulated or ‡exible, and the share of individuals with strong family ties is given
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Flexible labor market Individuals with weak family ties get a wage equal to 1 because they are perfectly mobile UFW = 1 Individuals with strong family ties: w + ∆(σ ) > 0 if immobile 1 ∆(σ) if mobile They get the reservation wage if they are immobile max[0, 1
2∆(σ )]
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
The utility of individuals with strong family ties is UFS = max[∆(σ), 1
∆(σ )]
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Rigid labor market The government regulates: minimum wage w job protection R s.t. job not destroyed if y
R
Deadweight losses associated with job protection: productivity is y c, c > 0, c small, instead of y y uniform distribution on [0, 1]
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Individuals with weak family ties get the expected utility URW = (1
R ) max(1
c, w ) + R (1
c ).
The expected utility of individuals with strong family ties is URS = (1 R ) max[w + ∆(σ ), 1 c R max[∆(σ ), 1 c ∆(σ)]
∆(σ )] +
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
In stage 2, people vote to choose the labor market policy according to the majority rule The share of individuals with strong family ties, chosen in stage one, is given The median voter can have either strong family ties or weak family ties 2 policies: either regulation or ‡exibility
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Individuals with weak family ties obtain UFW = 1 under labor market ‡exibility URW < 1 under labor market regulation Therefore, individuals with weak family ties always prefer labor market ‡exibility Vote ! labor market ‡exibility if the share of strong family ties σ < 1/2
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Suppose σ > 1/2, Assume that individuals with strong family ties are immobile if the majority of the population has strong family ties when the labor market is ‡exible, i.e.: Assumption 1: ∆(1/2) >
1 2
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
The expected utility of individuals with strong family ties with ‡exible labor market is UFS = ∆(σ) When the labor market is rigid: URS = (1
R )w + ∆ ( σ )
Thus, when σ > 1/2, a median voter with strong family ties prefers a rigid labor market rather than a ‡exible labor market
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
The optimal labor market regulation: max URS = (1
(w ,R )
R )w + ∆ ( σ )
subject to the zero pro…t condition Z 1
(y
c
w )dy = 0
R
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Solution R = c and w =
1
c
2 Workers with strong family ties get the expected utility URS
=
c )2
(1 2
+ ∆(σ)
which is larger than ∆(σ ), the utility they would get if the labor market was ‡exible In conclusion: the outcome of the vote is regulation if σ > 1/2 ‡exibility otherwise
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
In stage 1 individuals choose their family values with perfect foresight The payo¤ of individuals with strong family ties is ( max[∆(σ ), 1 ∆(σ )] if σ 1/2 ∆(σ) +
(1 c )2 2
if σ > 1/2
The payo¤ of individuals with weak family ties is 1 1
c
if σ 1/2 if σ > 1/2.
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Gains associated with strong family ties
B
Share of population with strong family ties
0
1/2
1
σ
A
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
There exists an equilibrium with weak family ties only if we assume: Assumption 2: when the share of population with strong family ties goes to 0, the utility gains induced by strong family ties are smaller than the maximum wage gains obtained by changing of location: ∆(0) < 1.
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Properties of equilibria The equilibrium with strong family ties and rigid labor market has lower employment lower production
than the equilibrium with weak family ties “Standard" result in economics, BUT
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Wefare comparison The equilibrium with strong family ties provides higher welfare than the equilibrium with weak family ties IFF ∆(1) is su¢ ciently large The economy can be coordinated on an equilibrium in which the labor market can be either too rigid or too ‡exible
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
The model The dynamics of family values
Paternalistic parents wish to transmit their own values to their children (Bisin and Verdier, 2001) Each individual lives for one period, and has payo¤s as before Children inherit family values with probability p and are free to choose their family values with probability 1 p If p > 1/2 and if the initial share of individuals with strong family ties is large ! rigid labor market small ! ‡exible labor markets 30 / 54
Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
The model yields two main predictions: 1
Individuals with strong family ties prefer more stringent labor market regulation, because they want to stay geographically immobile and they want to be protected from the monopsony power of …rms
2
The strength of family ties can persist over time and can have persistent e¤ects on labor market regulation if family values are transmitted across generations
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Family ties and the demand for labor market regulation
We document two facts
1
strong family ties predict strong demand for job security and wage regulation
2
positive cross-country correlations between the strength of family ties and labor market rigidity
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Family ties and the demand for labor market regulation Data
World Values Survey: 4 waves, 1981-2000: family ties, preference for job security, demand for regulation Word Bank: employment protection Aghion, Algan, Cahuc (2008) and ILO: minimum wage
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Family ties: (WVS) 1
2
3
How important is the family in one person’s life (with 1 being very important and 4 not important at all) Do you agree with one of the two statements (taking the values of 1 and 2 respectively): 1) Regardless of what the qualities and faults of one’s parents are, one must always love and respect them, 2) One does not have the duty to respect and love parents who have not earned it Do you agree with one of the two statements (taking the values of 1 or 2 respectively): 1) It is the parents’duty to do their best for their children even at the expense of their own well-being; 2) Parents have a life of their own
Following Alesina and Giuliano (2007), we combine these measures by extracting the …rst principal component 34 / 54
Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Preference for job security (WVS) “Here are some more aspects of a job that people say are important. Please look at them and tell me which ones you personally think are important in a job?: Good Job Security? ” The answers take on the value 1 if job security is mentioned and zero otherwise
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
1
Cross-country correlations MAR JOR IDN
TUR BGD
Preference for job security .4 .6 .8
NOR AUT CHE JPN GRC CHN LUX RUS SWE
DNK
EGY ZWE
UGA
ZAF UKR USA CHL POL BGR PRT BRA ESP MEX CAN SVK ROM ITA ARG AUS IRL GBR
FIN DEU LTU
IND
SVN IRN
HUN HRV
VNM VEN DZA NGA
PHL PRI
CZE
ISL
PER
EST
BEL
FRA
NLD BLR
.2
LVA
-1
-.5
0 Strength of Family ties
.5
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Microeconomic evidence
Important thing in a job: Government should Job security own the businesses *** *** .021 .012 .100*** .042* Strong family ties (.004) (.002) (.029) (.024) Time e¤ects Yes Yes Yes Yes Country-x Time No Yes No Yes N 63992 58412 Source: WVS - Controls: gender, education, political orientation, religion, income, Robust standard errors clustered at the country level: : ***:1%, **: 5%, *: 10.
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200
Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
BRA
150
EGY
Firing costs 100
IDN
TUR PRT CHN DEU
GRC
MEX
ROM ARG IRN IND
VNM JOR MAR
PHL
ESP PER IRL CHL BGD ITA VEN SVN HRV ZAF MKD GBRHUNFRA BGR ZW CAN POL SWE JPN CZE KGZ LVA BEL DZA UKR ISL NOR CHE UGA AUS NGA USA PRI
50
AUT
DNK LTU
EST FIN BLR
0
NLD
-1
-.5
0 Strength of Family ties
.5
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.08
Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
TUR
Stringency of wage regulation .02 .04 .06
NGA IND PHL AUS
PER DZA MAR
FRA
NLD UKR LTU EST DEU
SVN
ARG CHL POL
IDN VEN
BGD ROM BGR HUN PRT GRC CZE ESP SVK CAN LVA GBR ITA ZAF BRA AUT BEL CHN JPN USA MEX
0
RUS DNK
-1
FIN
-.5
SWE CHE
0 Strength of Family ties
.5
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
State regulation of minimum wage ** .306 .018** Strong family ties (.134) (.007) Observations 60 46 R2 .25 .40 Control: Legal origin (Common law, civil law, Scand, German) Source: World Values Survey, Alesina et Guliano (2007), ILO (2007) and Botero et al. (2004) Dependent variable
Firing Cost
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
The persistent e¤ects of family ties
We show that: 1
Second generation U.S. immigrants inherit the family values and the behavior of their country of origin
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
The persistent e¤ects of family ties
We show that: 1
2
Second generation U.S. immigrants inherit the family values and the behavior of their country of origin The strength of family ties before WWII is correlated with labor market rigidities at the beginning of the 21st century
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
The persistent e¤ects of family ties Intergenerational transmission of family values
General Social Survey to study the impact of family values on attitudes of U.S. immigrants towards labor market regulation (since 1977) March Supplement of the Current Population Survey of the U.S. to study labor market outcomes of immigrants. (since 1994) Both surveys provide information on the birth place and the country of origin of the respondent
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
For both attitudes and labor market outcomes, we run the following OLS or probit (depending on the nature of the left hand side variable) regressions: Yic = α0 + α1 family_tiesc + α2 Xi + δs + εic Yic is our variable of interest for an immigrant i whose forbear was born in country c Xi are individual controls family_tiesk is the measure of strong family ties calculated from the WVS in the country of origin δs state or county dummies whenever possible
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Mobility *** Strong family ties -.026 -.019*** in home country (.007) (.006) N 80210 79459 Mobility= 1 if the individual moved from/in a di¤erent state, or abroad in the last …ve years Controls: gender, education, family status, income
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Unemployed *** Strong family ties .014 .012*** in home country (.005) (0.005) N 53938 52344 Unemployed is a dummy equal to 1 if the person is unemployed Controls: gender, education, family status, income
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Log hourly wage All Unskilled *** Strong family ties -.053 -.063** in home country (.0018) (.024) N 51192 22208 Unskilled 12 years of schooling Controls: gender, education, family status, income
Skilled -.142** (.037) 28984
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Important thing in a job: security Strong family ties .486*** in home country (.093) N 8063 GSS - Controls: gender, age, education, income, political a¢ liation
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Government Government should save job should regulate wage *** Strong family ties .705 .856*** in home country (.023) (.042) N 2583 2583 GSS - Controls: gender, age, education, income, political a¢ liation
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
The persistent e¤ects of family ties The persistent e¤ects of family ties on labor market regulation
Family values are transmitted across generations We show now the persistent e¤ect of family values Countries with stronger family ties before WWII have more rigid labor markets in the beginning of the 21st century
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
We detect family values before 1940 by looking at the family values inherited from their country of origin by U.S. immigrants whose forebears arrived in the U.S. before 1940 (second, third, fourth generations) Country of origin …xed e¤ects OLS regression for answers to the question about family ties in the GSS
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
The question is: “Do you spend social evening with relatives?” 1 2 3 4 5 6 7
almost daily several times a week several times a month once a month several times a year once a year never
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Strength of family ties in 1980-2000 -.5 0
.5
PHL
ITA POL IRL
ARG
CAN
PRT FRA HUN BEL CZE
ESP IND
ROM
MEX
GBR
JPN CHE CHN RUS NOR SWE DEU
AUT
GRC
FIN
NLD DNK
-1
LTU
-1.5
-1
-.5 0 Strength of Family ties before 1940
.5
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
State regulation of minimum wage ** Strength of family .429 .018** ties before 1940 (.162) (.007) 2 R .25 .48 N 27 26 Control: Legal origin (Common law, civil law, Scand, German) Source: GSS, ILO (2007) and Botero et al. (2004) Dependent variable
Firing Cost
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Conclusion Low employment associated with labor market rigidity could be the price that certain countries choose to pay in order to enjoy the bene…ts of family ties We do not know whether labor markets are too rigid or too ‡exible This conclusion illustrates the interest of accounting for cultural values in economics This approach may have many virtues opens our mind of economist ? better policy advices ??
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Introduction The model Family ties and the demand for labor market regulation The persistent e¤ects of family ties Conclusion
Conclusion Low employment associated with labor market rigidity could be the price that certain countries choose to pay in order to enjoy the bene…ts of family ties We do not know whether labor markets are too rigid or too ‡exible This conclusion illustrates the interest of accounting for cultural values in economics This approach may have many virtues opens our mind of economist ? better policy advices ??
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