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Rent Seeking at Plant Level: An Application of the Card-De la Rica Tenure Model to Workers in German Works Councils

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  • John T. Addison

    ( Department of Economics, University of South Carolina, Queen’s University Belfast, and Rimini Centre for Economic Analysis)

  • Paulino Teixeira

    ( Faculty of Economics/GEMF, University of Coimbra)

  • Thomas Zwick

    ( Munich School of Management, Ludwig-Maximilians University Munich, and Centre for European Economic Research/ZEW, Mannheim)

Abstract

Low-skilled workers enjoy a large wage advantage in German works council establishments. Since job tenure is also longer for these workers, one explanation might be rent-seeking. If the premium is a compensating wage differential (or a return to unmeasured ability), it should not lead to higher tenure; whereas if it is (partly) rent, lower quits should lead to longer tenure at plants with works councils. Our analysis uses the Card and de la Rica (2006) tenure model, and although the association between skill level and the works council tenure gap is positive it fails to achieve statistical significance in a single equation framework. However, running the tenure equation for separate skill quintiles, we find that those with the highest wage premium have the greatest tenure. As a result, although we cannot be certain that the works council wage mark-up of low-skilled workers is necessarily a non competitive rent, the observed pattern of job tenure across different skill subsamples is not after all inconsistent with rent-seeking behavior.

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Bibliographic Info

Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 12_09.

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Date of creation: Jan 2009
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Handle: RePEc:rim:rimwps:12_09

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  1. John T. Addison & Paulino Teixeira & Thomas Zwick, 2008. "German Works Councils and the Anatomy of Wages," Working Paper Series 11-08, The Rimini Centre for Economic Analysis, revised Jan 2008.
  2. Card, David, 1996. "The Effect of Unions on the Structure of Wages: A Longitudinal Analysis," Econometrica, Econometric Society, vol. 64(4), pages 957-79, July.
  3. David Card & Sara de la Rica, 2006. "Firm-level contracting and the structure of wages in Spain," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 59(4), pages 573-592, July.
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