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Works Councils and the Anatomy of Wages

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Author Info

  • Addison, John T.

    ()
    (University of South Carolina)

  • Teixeira, Paulino

    ()
    (University of Coimbra)

  • Zwick, Thomas

    ()
    (University of Würzburg)

Abstract

This paper provides the first full examination of the effect of German works councils on wages using matched employer-employee data (specifically, the LIAB for 2001). We find that works councils are associated with higher earnings. The wage premium is around 11 percent (and is higher under collective bargaining). 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, the works council wage premium is associated with longer job tenure. This suggests that some of the premium is a noncompetitive rent, even if works council voice may dominate its distributive effects insofar as tenure is concerned.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2474.

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Length: 48 pages
Date of creation: Nov 2006
Date of revision:
Publication status: published as 'German Work Councils and the Anatomy of Wages' in: Industrial and Labor Relations Review, 2010, 63(2), 247-270
Handle: RePEc:iza:izadps:dp2474

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Keywords: matched employer-employee data; wage distribution; works councils; rent seeking; tenure; wages;

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References

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  1. 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).
  2. 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.
  3. Richard B. Freeman & Edward P. Lazear, 1995. "An Economic Analysis of Works Councils," NBER Chapters, in: Works Councils: Consultation, Representation, and Cooperation in Industrial Relations, pages 27-52 National Bureau of Economic Research, Inc.
  4. 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).
  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 200503_de, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  6. Freeman, Richard B, 1980. "The Exit-Voice Tradeoff in the Labor Market: Unionism, Job Tenure, Quits, and Separations," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 94(4), pages 643-73, June.
  7. 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.
  8. 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.
  9. 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.
  10. Addison, John T. & Bellmann, Lutz & Schnabel, Claus & Wagner, Joachim, 2002. "The reform of the German works constitution act: a critical assessment," Discussion Papers 16, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  11. Addison, John T. & Schnabel, Claus & Wagner, Joachim, 2003. "The course of research into the economic consequences of German works councils," Discussion Papers 22, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  12. Gesine Stephan & Knut Gerlach, 2005. "Wage settlements and wage setting: results from a multi-level model," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(20), pages 2297-2306.
  13. Addison, John T. & Schnabel, Claus & Wagner, Joachim, 2006. "The (Parlous) State of German Unions," IZA Discussion Papers 2000, Institute for the Study of Labor (IZA).
  14. David Card & Sara de la Rica, 2005. "The Effect of Firm-Level Contracts on the Structure of Wages: Evidence from Matched Employer-Employee Data," NBER Working Papers 11829, National Bureau of Economic Research, Inc.
  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.
  16. Horst Siebert, 1997. "Labor Market Rigidities: At the Root of Unemployment in Europe," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 37-54, Summer.
  17. 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.
  18. FitzRoy, Felix R & Kraft, Kornelius, 1985. "Unionization, Wages and Efficiency: Theories and Evidence from the U.S. and West Germany," Kyklos, Wiley Blackwell, vol. 38(4), pages 537-54.
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Citations

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Cited by:
  1. Karsten Kohn & Alexander C. Lembcke, 2007. "Wage Distributions by Bargaining Regime: Linked Employer-Employee Data Evidence from Germany," CEP Discussion Papers dp0813, Centre for Economic Performance, LSE.
  2. Salvatori, Andrea, 2009. "What Do Unions Do to Temporary Employment?," IZA Discussion Papers 4554, Institute for the Study of Labor (IZA).
  3. Bernd Fitzenberger & Karsten Kohn & Alexander C. Lembcke, 2013. "Union Density and Varieties of Coverage: The Anatomy of Union Wage Effects in Germany," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 66(1), pages 169-197, January.
  4. Karsten Kohn & Alexander Lembcke, 2007. "Wage distributions by bargaining regime," AStA Wirtschafts- und Sozialstatistisches Archiv, Springer, vol. 1(3), pages 247-261, December.
  5. Uwe Jirjahn, 2011. "Gender, Worker Representation and the Profitability of Firms in Germany," Research Papers in Economics 2011-06, University of Trier, Department of Economics.
  6. Kornelius Kraft & Julia Lang, 2008. "The Causes and Consequences of Adopting a Works Council," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 228(5+6), pages 512-532, December.
  7. Mirella Damiani & Jens Hölscher & Fabrizio Pompei, 2011. "Labour market inequalities and the role of institutions," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 8(2), pages 163-173, December.
  8. Wolf, Elke & Heinze, Anja, 2007. "How to Limit Discrimination? Analyzing the Effects of Innovative Workplace Practices on Intra-Firm Gender Wage Gaps Using Linked Employer-Employee Data," ZEW Discussion Papers 07-077, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  9. Heinze, Anja, 2010. "Beyond the mean gender wage gap: Decomposition of differences in wage distributions using quantile regression," ZEW Discussion Papers 10-043, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  10. Boockmann, Bernhard & Steffes, Susanne, 2007. "Seniority and Job Stability: A Quantile Regression Approach Using Matched Employer-Employee Data," ZEW Discussion Papers 07-014, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  11. Göbel, Christian & Zwick, Thomas, 2010. "Which personnel measures are effective in increasing productivity of old workers?," ZEW Discussion Papers 10-069, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  12. Uwe Jirjahn, 2013. "Der Beitrag der Arbeitsmarktökonomik zur Erforschung von Gewerkschaften und Tarifvertragsbeziehungen in Deutschland," Research Papers in Economics 2013-03, University of Trier, Department of Economics.

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