Works Councils and Employment Growth: A Rejoinder to Uwe Jirjahn’s Critique

In a characteristically combative treatment, Jirjahn (2008a) argues that Addison and Teixeira’s (2006) finding of a negative relationship between works council presence and employment growth is a chimera produced by the way in which establishment size is measured. We reject his assertion of misspecification for two reasons; the second of which undoubtedly contributed to leading Jirjahn astray. And while Jirjahn’s treatment is of interest in its own right, he does a poor job of portraying our overall analysis. Thus, he neglects our treatment of survival bias while ignoring our presentation of a dynamic labor demand model. Elsewhere he seems to grudgingly support the former (Jirjahn 2008b), and implicitly to accept our findings pertaining to employment adjustment (where we report that works councils do not slow the tortuous pace of employment adjustment in Germany). At root, the thrust of his treatment is adversarial and his position on the economic effects of works councils over-optimistic. But the main lesson of Jirjahn’s critique is that more work is required of all of us in this area. Issues raised by the present exchange, apart from the need for a wider set of covariates and longer time frame, include the selection of firms into collective bargaining and works councils and out of the system, and the consequences for the raw point estimates. Pending this work, it would be idle to overstate the robustness of the extant results. We hinted at this in our own treatment in comparing cross-sectional results with dynamic panel estimates.