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The Impact of Works Councils on Wages

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Author Info

  • John T. Addison

    (University of South Carolina (U.S.A.), GEMF/Universidade de Coimbra (Portugal))

  • Paulino Teixeira

    ()
    (GEMF and Faculdade de Economia, Universidade de Coimbra)

  • Thomas Zwick

    (CEER/Zentrum für Europäische Wirtschaftsforschung, Mannheim (Germany))

Abstract

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.

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Bibliographic Info

Paper provided by GEMF - Faculdade de Economia, Universidade de Coimbra in its series GEMF Working Papers with number 2006-08.

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Length: 51 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:gmf:wpaper:2006-08

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References

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  1. Farber, Henry S, 1994. "The Analysis of Interfirm Worker Mobility," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 12(4), pages 554-93, October.
  2. Addison, John T. & Bellmann, Lutz & Schnabel, Claus & Wagner, Joachim, 2002. "The reform of the German works constitution act: a critical assessment," Discussion Papers, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics 16, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  3. Olaf H¸bler & Uwe Jirjahn, 2003. "Works Councils and Collective Bargaining in Germany: The Impact on Productivity and Wages," Scottish Journal of Political Economy, Scottish Economic Society, Scottish Economic Society, vol. 50(4), pages 471-491, 09.
  4. Joan Muysken & Thomas Zwick, 2006. "Wage Divergence and Unemployment: The Impact of Wage Setting Power and Training Costs," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, Duncker & Humblot, Berlin, vol. 126(1), pages 1-19.
  5. Alda, Holger, 2005. "Datenbeschreibung der Version 1 des LIAB-Längsschnittmodells (LIAB Longitudinal Model Version 1 - Data Description)," FDZ Datenreport. Documentation on Labour Market Data, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany] 200503_de, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  6. Horst Siebert, 1997. "Labor Market Rigidities: At the Root of Unemployment in Europe," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(3), pages 37-54, Summer.
  7. FitzRoy, Felix R & Kraft, Kornelius, 1985. "Unionization, Wages and Efficiency: Theories and Evidence from the U.S. and West Germany," Kyklos, Wiley Blackwell, Wiley Blackwell, vol. 38(4), pages 537-54.
  8. John T. Addison & Claus Schnabel & Joachim Wagner, 2006. "The (Parlous) State of German Unions," Working Paper Series in Economics, University of Lüneburg, Institute of Economics 23, University of Lüneburg, Institute of Economics.
  9. Card, David & de la Rica, Sara, 2004. "The Effect of Firm-Level Contracts on the Structure of Wages: Evidence from Matched Employer-Employee Data," IZA Discussion Papers 1421, Institute for the Study of Labor (IZA).
  10. Richard B. Freeman & Edward P. Lazear, 1995. "An Economic Analysis of Works Councils," NBER Chapters, National Bureau of Economic Research, Inc, in: Works Councils: Consultation, Representation, and Cooperation in Industrial Relations, pages 27-52 National Bureau of Economic Research, Inc.
  11. Addison, John T. & Schnabel, Claus & Wagner, Joachim, 2003. "The course of research into the economic consequences of German works councils," Discussion Papers, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics 22, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  12. Kölling, Arnd & Schnabel, Claus & Wagner, Joachim, 2002. "Establishment Age and Wages: Evidence from German Linked Employer-Employee Data," IZA Discussion Papers 679, Institute for the Study of Labor (IZA).
  13. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(3), pages 410-42, June.
  14. John T. Addison & Paulino Teixeira, 2005. "The Effect of Works Councils on Employment Change," GEMF Working Papers, GEMF - Faculdade de Economia, Universidade de Coimbra 2005-06, GEMF - Faculdade de Economia, Universidade de Coimbra.
  15. Horn, Henrik & Svensson, Lars E O, 1986. "Trade Unions and Optimal Labour Contracts," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 96(382), pages 323-41, June.
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Citations

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Cited by:
  1. John T. Addison & Paulino Teixeira & Katalin Evers & Lutz Bellmann, 2013. "Collective Bargaining and Innovation in Germany: Cooperative Industrial Relations?," GEMF Working Papers, GEMF - Faculdade de Economia, Universidade de Coimbra 2014-01, GEMF - Faculdade de Economia, Universidade de Coimbra.
  2. Addison, John T. & Bellmann, Lutz & Schnabel, Claus & Wagner, Joachim, 2002. "The Long Awaited Reform of the German Works Constitution Act," IZA Discussion Papers 422, Institute for the Study of Labor (IZA).
  3. John T. Addison & Claus Schnabel & Joachim Wagner, 2004. "The Course of Research into the Economic Consequences of German Works Councils," British Journal of Industrial Relations, London School of Economics, London School of Economics, vol. 42(2), pages 255-281, 06.
  4. Zwick, Thomas, 2007. "Apprenticeship training in Germany - investment or productivity driven?," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 40(2/3), pages 193-204.
  5. repec:iab:iabzaf:v:40:i:2/3:p:193-204 is not listed on IDEAS
  6. Dilger, Alexander, 1997. "Ertragswirkungen von Betriebsräten: Eine Untersuchung mit Hilfe des NIFA-Panels," Wirtschaftswissenschaftliche Diskussionspapiere, Ernst Moritz Arndt University of Greifswald, Faculty of Law and Economics 04/1997, Ernst Moritz Arndt University of Greifswald, Faculty of Law and Economics.
  7. Addison, John T. & Bellmann, Lutz & Kölling, Arnd, 2002. "Unions, Works Councils and Plant Closings in Germany," IZA Discussion Papers 474, Institute for the Study of Labor (IZA).
  8. Uwe Cantner & Wolfgang Gerstlberger & Ipsita Roy, 2014. "Works Councils, Training Activities and Innovation: A Study of German Firms," Jena Economic Research Papers, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics 2014-006, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.

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