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An Economic Analysis of Works Councils

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  • Richard B. Freeman
  • Edward P. Lazear

Abstract

Works councils, found in most Western European economies, are elected bodies of employees with rights to information, consultation, and in some cases co-determination of employment conditions at local workplaces, mandated by law. Many European employers and unions believe that councils improve communication between workers and management, raising social output, while reducing the speed with which decisions are made. This paper analyzes the operation of councils as a means of improving social output by creating more cooperative labor relations. It argues that councils are mandated because the incentive for companies to institute them and delegate them power falls short of the social incentive; that workers provide more accurate information to employers about preferences when councils have some say over how that information is used; and that the communication from employers to workers produces socially desirable worker concessions in bad times that would not occur absent this institution. It compares a jury style random selection of works councilors with selection via elections.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4918.

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Date of creation: Nov 1994
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Publication status: published as "An Economic Analysis of Works Councils." Works Councils: Consultation, Representation and Cooperation in Industrial Relations University of Chicago Press, 1996. Eds. Joel Rogers and Wolfgang Streeck.
Handle: RePEc:nbr:nberwo:4918

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