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Do Works Councils Inhibit Investment?

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Author Info
Addison, John T. (University of South Carolina, Universidade de Coimbra/GEMF and IZA Bonn)
Schank, Thorsten (University of Erlangen-Nuremberg)
Schnabel, Claus (University of Erlangen-Nuremberg)
Wagner, Joachim () (University of Lueneburg, HWWA and IZA Bonn)

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Abstract

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.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1473.

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Length: 34 pages
Date of creation: Jan 2005
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Handle: RePEc:iza:izadps:dp1473

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Related research
Keywords: works councils; investment; Germany;

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Find related papers by JEL classification:
J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kirchesch, Kai, 2004. "Financial Risks, Bankruptcy Probabilities, and the Investment Behaviour of Enterprises," Discussion Paper Series 26185, Hamburg Institute of International Economics. [Downloadable!]
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    Other versions:
  3. Menezes-Filho, Naercio & Van Reenen, John, 2003. "Unions and Innovation: A Survey of the Theory and Empirical Evidence," CEPR Discussion Papers 3792, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Denny, Kevin & Nickell, Stephen J, 1992. "Unions and Investment in British Industry," Economic Journal, Royal Economic Society, vol. 102(413), pages 874-87, July. [Downloadable!] (restricted)
    Other versions:
  6. 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, Blackwell Publishers Ltd/London School of Economics, vol. 42(2), pages 255-281, 06. [Downloadable!] (restricted)
    Other versions:
  7. Machin, Stephen & Wadhwani, Sushil, 1991. "The Effects of Unions of Investment and Innovation: Evidence from WIRS," Economic Journal, Royal Economic Society, vol. 101(405), pages 324-30, March. [Downloadable!] (restricted)
  8. Addison, John T & Chilton, John B, 1998. "Self-Enforcing Union Contracts: Efficient Investment and Employment," Journal of Business, University of Chicago Press, vol. 71(3), pages 349-69, July. [Downloadable!] (restricted)
  9. Paz Espinosa, Maria & Rhee, Changyong, 1989. "Efficient Wage Bargaining as a Repeated Game," The Quarterly Journal of Economics, MIT Press, vol. 104(3), pages 565-88, August. [Downloadable!] (restricted)
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  11. Baldwin, Carliss Y, 1983. "Productivity and Labor Unions: An Application of the Theory of Self-Enforcing Contracts," Journal of Business, University of Chicago Press, vol. 56(2), pages 155-85, April. [Downloadable!] (restricted)
  12. Steve Bond & Dietmar Harhoff & John Van Reenen, 1999. "Investment, R&D and financial constraints in Britain and Germany," IFS Working Papers W99/05, Institute for Fiscal Studies. [Downloadable!]
    Other versions:
  13. Addison, John T. & Bellmann, Lutz & Schnabel, Claus & Wagner, Joachim, 2002. "German Works Councils Old and New: Incidence, Coverage and Determinants," IZA Discussion Papers 495, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  14. Bronars, Stephen G & Deere, Donald R, 1993. "Unionization, Incomplete Contracting, and Capital Investment," Journal of Business, University of Chicago Press, vol. 66(1), pages 117-32, January. [Downloadable!] (restricted)
  15. 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, vol. 50(4), pages 471-491, 09. [Downloadable!] (restricted)
    Other versions:
  16. Cameron W. Odgers & Julian R. Betts, 1997. "Do unions reduce investment? Evidence from Canada," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 51(1), pages 18-36, October.
  17. Addison, John T & Schnabel, Claus & Wagner, Joachim, 2001. "Work Councils in Germany: Their Effects on Establishment Performance," Oxford Economic Papers, Oxford University Press, vol. 53(4), pages 659-94, October.
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Wagner, Joachim, 2009. "One-third Codetermination at Company Supervisory Boards and Firm Performance in German Manufacturing Industries: First Direct Evidence from a New Type of Enterprise Data," IZA Discussion Papers 4352, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Uschi Backes-Gellner & Simone Tuor, 2007. "Avoiding Labor Shortages by Employer Signaling - On the Importance of Good Work Climate and Labor Relations," Economics of Education Working Paper Series 0010, University of Zurich, Institute for Strategy and Business Economics (ISU). [Downloadable!]
    Other versions:
  3. Franz, Wolfgang, 2005. "Die deutsche Mitbestimmung auf dem Prüfstand : Bilanz und Vorschläge für eine Neuausrichtung (The German model of codetermination under test * conclusions and suggestions for reorientation)," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 38(2/3), pages 268-283. [Downloadable!]
  4. Birgit Schultz, 2006. "Möglichkeiten und Grenzen des Matching-Ansatzes – am Beispiel der betrieblichen Mitbestimmung –," IWH Discussion Papers 15-06, Halle Institute for Economic Research. [Downloadable!]
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