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Flexible Collective Bargaining Agreements: Still a Moderating Effect on Works Council Behaviour?

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We analyse the interaction between different labour market institutions in Germany, a country with a long tradition of strong bargaining partners. A number of studies have established that industry-level bargaining exerts a moderating role on firm-level co-determination: works councils generate rather than redistribute rents in plants covered by collective bargaining agreements. This work analyses whether these findings still hold, given recent developments in the German system of industrial relations towards more bargaining decentralisation, such as opening clauses or company-level pacts for employment. In addition, we provide evidence pertaining to whether labour market reforms targeted at one institution (a push of collective bargaining agreements towards more flexibility) are counteracted by altering the effects of other, unaffected institutions (the rent-seeking behaviour of works councils). Analysing institutional changes and augmenting a theoretical model provides hypotheses, which are then tested using empirical analysis of representative German plant level data. We find that the existence of flexibility provisions in collective bargaining agreements do not drive works council behaviour towards rent-seeking. Regarding rent-generation, we find an amplifying effect: works council existence is associated with higher productivity in plants covered by industry-level contracts. These findings, however, depend on the level of collective bargaining: they do not hold in plants covered by firm-level contracts.

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Paper provided by Institut für Angewandte Wirtschaftsforschung (IAW) in its series IAW Discussion Papers with number 96.

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Length: 41 pages
Date of creation: Oct 2013
Date of revision:
Handle: RePEc:iaw:iawdip:96

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Keywords: works councils; collective bargaining; employment pacts; opening clauses; wages; productivity;

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  1. Boockmann, Bernhard & Steffes, Susanne, 2008. "Workers, Firms, or Institutions: What Determines Job Duration for Male Employees in Germany?," ZEW Discussion Papers 08-116, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Tobias Brändle & Wolf Dieter Heinbach, 2010. "Opening Clauses in Cellective Bargaining Agreements: More Flexibility to Save Jobs?," IAW Discussion Papers 67, Institut für Angewandte Wirtschaftsforschung (IAW).
  3. Boris Hirsch & Steffen Mueller, 2012. "The Productivity Effect of Temporary Agency Work: Evidence from German Panel Data," Economic Journal, Royal Economic Society, vol. 122(562), pages F216-F235, 08.
  4. Hirsch, Boris & Schank, Thorsten & Schnabel, Claus, 2009. "Work councils and separations: voice, monopoly, and insurance effects," Discussion Papers 62, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  5. Steffen Mueller, 2012. "Works Councils and Establishment Productivity," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 65(4), pages 880-898, October.
  6. Helge Berger & Michael Neugart, 2012. "How German Labor Courts Decide: An Econometric Case Study," German Economic Review, Verein für Socialpolitik, vol. 13(1), pages 56-70, 02.
  7. Steffen Mueller, 2008. "Capital stock approximation using firm level panel data," Working Papers 038, Bavarian Graduate Program in Economics (BGPE).
  8. Wolf Heinbach, 2007. "Wages in wage-setting regimes with opening clauses," AStA Wirtschafts- und Sozialstatistisches Archiv, Springer, vol. 1(3), pages 233-245, December.
  9. Uwe Jirjahn, 2011. "Ökonomische Wirkungen der Mitbestimmung in Deutschland: Ein Update," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 131(1), pages 3-57.
  10. Lutz Bellmann & Knut Gerlach & Wolfgang Meyer, 2008. "Company-Level Pacts for Employment," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 228(5+6), pages 533-553, December.
  11. John T. Addison & Paulino Teixeira, 2005. "The Effect of Works Councils on Employment Change," GEMF Working Papers 2005-06, GEMF - Faculdade de Economia, Universidade de Coimbra.
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