Do Works Councils Inhibit Investment?

Theory suggests that firms confront a hold-up problem in dealing with workplace unionism: unions will appropriate a portion of the quasi rents stemming from long-lived capital. As a result, firms may be expected to limit their exposure to rent seeking by reducing investments, among other things. Although there is some empirical support for this prediction in firm-level studies for the United States, we investigate whether this is also the case in the different institutional context of Germany where the works council is the analogue of workplace unionism. Using parametric and nonparametric methods and establishment panel data, we find no evidence that the formation (dissolution) of a works council has an unfavorable (favorable) impact on investment. -- Theoretische Überlegungen deuten darauf hin, dass Firmen durch Arbeitnehmervertretungen auf Betriebsebene wie Gewerkschaften mit einem ?hold-up?-Problem konfrontiert werden, da letztere sich einen Teil der Quasi-Renten aus langlebigen Kapitalinvestitionen aneignen können. Deshalb mögen die Firmen ihre Anfälligkeit für derartiges ?rent seeking? dadurch verringern, dass sie ihre Investitionen zurückfahren. Während es für diese Hypothese empirische Bestätigungen durch Firmenstudien aus den USA gibt, untersuchen wir, ob dies auch in dem unterschiedlichen institutionellen Umfeld in Deutschland der Fall ist, wo statt Betriebsgewerkschaften Betriebsräte eine ähnliche Rolle spielen können. Unter Verwendung von parametrischen und nichtparametrischen Methoden sowie von Betriebspaneldaten finden wir keine empirischen Hinweise darauf, dass die Errichtung (bzw. Abschaffung) eines Betriebsrates einen negativen (bzw. positiven) Einfluss auf das betriebliche Investitionsverhalten hat.Investment,works councils,rent seeking,Germany,panel data

The Heterogeneous Economic Consequences of Works Council Relations

I use a question about works council relations from the 2006 wave of the IAB Establishment panel to analyze the heterogeneous effects of works councils on productivity, wages, and profits. The results indicate that the effects differ significantly between works council relationship types in a systematic pattern. The overall findings are in line with productivity-enhancing and rent-sharing functions of works councils.industrial relations, firm performance, codetermination, works councils

The Heterogeneous Economic Consequences of Works Council Relations

I use a question about works council relations from the 2006 wave of the IAB Establishment panel to analyze the heterogeneous effects of works councils on productivity, wages, and profits. The results indicate that the effects differ significantly between works council relationship types in a systematic pattern. The overall findings are in line with productivity-enhancing and rent-sharing functions of works councils.Codetermination; Firm performance; Industrial relations; Works councils

European Works Councils Experiences

In September, 2011 there was 15th anniversary of the implementation of the first EU directive creating European Works Councils (EWCs). This is also the year when the new version of the directive was put in force, i.e. Directive 2009/38/EC. EWCs are a form of indirect employee participation on European level which guarantees workers the right to information and consultation. The employees' representatives of all undertakings of transnational company were given the opportunity to voice their opinion about the decisions to be made by central management of the company. In this article three major topics are discussed: the role of European Works Councils in EU countries, the range of these institutions of employee participation on European level and changes in EWCs' functioning introduced by the new EWC directive. The main aim of the paper is to present diverse patterns of these institutions as well as to attempt the evaluation of EWCs effectiveness and their influence on the system of industrial relations in Europe.We wrześniu 2011 r. minęła 15 rocznica wejścia w życie pierwszej unijnej dyrektywy powołującej Europejskie Rady Zakładowe (ERZ). W tym roku także zaczęła obowiązywać nowa wersja tej regulacji, tzn. dyrektywa 2009/38/EC. ERZ są formą reprezentacyjnej partycypacji pracowniczej na poziomie europejskim, która gwarantuje pracownikom prawo do informacji i konsultacji. Reprezentanci załogi otrzymali możliwość wyrażania swoich opinii o projektowanych decyzjach centralnego kierownictwa przedsiębiorstwa transnarodowego, które odnoszą się do pracowników we wszystkich zakładach tego przedsiębiorstwa. Niniejszy artykuł koncentruje się trzech głównych obszarach: roli Europejskich Rad Zakładowych w krajach UE, zasięgu tych instytucji partycypacji na poziomie europejskim i zmianach w funkcjonowaniu ERZ spowodowanych wprowadzeniem nowej dyrektywy. Głównym celem artykułu jest przedstawienie różnych rodzajów tych instytucji oraz próba oceny efektywności ERZ i ich wpływu na system stosunków przemysłowych w Europie

The impact of Dutch works councils according to managers

Although works councils have, by and large, equally extensive legal rights in Germany and the Netherlands, this is the first econometric analysis that investigates the influence of Dutch works councils on firm performance. We use a nation-wide Dutch dataset with information on management’s perceptions of the works council’s impact on their firms’ efficiency and innovation. Inspired by the German study of Jirjahn and Smith (2006), we analyze which determinants influence management’s attitude toward employee participation in the Netherlands. We establish a preponderant influence emanating from the works council’s role attitude and management’s leadership style.works councils, managerial response, effectiveness, efficiency, innovation

European Works Councils and the healthcare sector

Profiles of healthcare companies with European Works Councils and some eligible companies

Conditions of workers' participation in the European context-works councils structures in the Central and Eastern Europe

The implementation of the 2002 Directive caused establishment of participation structures in coimtries of the Central and Eastern Europę following the pattern of works councils in Western Europę. The institiitions of workers participation have right to information and consultation but they do not possess the right to codetermination which for a long time has been granted to most works councils in the old EU Member States. Works councils in the new EU Member States have not been established on the road of organie development but they had to define their entitlements and evolve organizational structures themselves. In this article two major topics are discussed: types of employees' interests representation and dijferences in structures of works councils in coimtries of the Central and Eastern Europę. The main aim of the paper is to present the most important factors which affect the establishment and creation of such institiitions

The Impact of Works Councils on Wages

This paper investigates for the first time the effect of works councils on the anatomy of wages, using matched employer-employee data from the German LIAB for 2001. We find that works councils are associated with higher earnings. The wage premium is roughly comparable with the combined effect of sectoral and plant collective bargaining proper. This result persists after taking account of worker and establishment heterogeneity and the endogeneity of works council presence. Next, using quantile regressions, we find that the works council premium is decreasing with the position of the worker in the wage distribution. And it is also higher for women than for men. Finally, in addition to attenuating the gender wage gap and reducing wage dispersion, works councils have a small but significantly positive impact on tenure after controlling for wages. This suggests that there is some rent sharing; even if, overall, the entity’s voice effects appear to dominate its monopoly effects.

Trade union membership and work councils in West Germany

The fraction of works councillors belonging to a trade union in Germany is much higher than union density among employees. If works councils represent the face of unions, union membership of employees should be related positively to the existence of works councils and their proximity to unions. Using data from the German Socio-Economic-Panel SOEP we find that (a) works councillors exhibit a higher probability of being a union member, (b) the mere existence of a works council within an establishment has no impact on union membership and (c) a 10 % decrease in the average share of unionised works councillors coincides with a 10 % fall in the probability of being a union member. Hence, the decline in the unionisation of works councillors and the fall in union density in West Germany are closely linked. --panel data,trade union membership,works council

Works Councils and Heterogeneous Firms

Theoretical analyses of the effects of works councils show ambiguous results. Therefore an empirical investigation of the issue is inevitable. The results so far are mixed, frequently a positive effect on productivity, but a negative one on profits is found. The problem of both theoretical and empirical studies is the assumption of firm homogeneity. To close this gap, we take into account firm heterogeneity proxied by the percentage of highly qualified employees in the workforce. The theoretical result that the positive productivity effect is more pronounced in firms with well-defined majorities is confirmed in the empirical part of the paper. The results on profitability are less favourable for works councils: in those firms where the productivity effect is significant, the profitability effect is negative, except for firms with a very high percentage of highly qualified employees. Turning to the effect of collective agreements, they seem to mitigate the problem of reduced profitability in firms with no clear majority in the structure of qualifications.firm heterogeneity, works councils, productivity, profitability, IAB Establishment-Panel