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Do Works Councils Inhibit Investment?

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Author Info

  • Wagner, Joachim
  • Schnabel, Claus
  • Schank, Thorsten
  • Addison, John T.

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. -- Theoretische Überlegungen deuten darauf hin, dass Firmen durch Arbeitnehmervertretungen auf Betriebsebene wie Gewerkschaften mit einem ?hold-up?-Problem konfrontiert werden, da letztere sich einen Teil der Quasi-Renten aus langlebigen Kapitalinvestitionen aneignen können. Deshalb mögen die Firmen ihre Anfälligkeit für derartiges ?rent seeking? dadurch verringern, dass sie ihre Investitionen zurückfahren. Während es für diese Hypothese empirische Bestätigungen durch Firmenstudien aus den USA gibt, untersuchen wir, ob dies auch in dem unterschiedlichen institutionellen Umfeld in Deutschland der Fall ist, wo statt Betriebsgewerkschaften Betriebsräte eine ähnliche Rolle spielen können. Unter Verwendung von parametrischen und nichtparametrischen Methoden sowie von Betriebspaneldaten finden wir keine empirischen Hinweise darauf, dass die Errichtung (bzw. Abschaffung) eines Betriebsrates einen negativen (bzw. positiven) Einfluss auf das betriebliche Investitionsverhalten hat.

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Bibliographic Info

Paper provided by Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics in its series Discussion Papers with number 32.

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Date of creation: 2005
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Handle: RePEc:zbw:faulre:32

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Web page: http://www.arbeitsmarkt.wiso.uni-erlangen.de/english-version/
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Keywords: Investment; works councils; rent seeking; Germany; panel data;

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References

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  1. Bond, Stephen & Van Reenen, John, 2007. "Microeconometric Models of Investment and Employment," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 65 Elsevier.
  2. Connolly, Robert A & Hirsch, Barry T & Hirschey, Mark, 1986. "Union Rent Seeking, Intangible Capital, and Market Value of the Firm," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 567-77, November.
  3. Bruce C. Fallick & Kevin A. Hassett, 1996. "Investment and union certification," Finance and Economics Discussion Series 96-43, Board of Governors of the Federal Reserve System (U.S.).
  4. Kirchesch, Kai, 2004. "Financial Risks, Bankruptcy Probabilities, and the Investment Behaviour of Enterprises," HWWA Discussion Papers 299, Hamburg Institute of International Economics (HWWA).
  5. Cameron W. Odgers & Julian R. Betts, 1997. "Do unions reduce investment? Evidence from Canada," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 51(1), pages 18-36, October.
  6. Hirsch, Barry T. & Prasad, Kislaya, 1995. "Wage-employment determination and a union tax on capital: Can theory and evidence be reconciled?," Economics Letters, Elsevier, vol. 48(1), pages 61-71, April.
  7. 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.
  8. 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.
  9. Addison, John T & Chilton, John B, 1998. "Self-Enforcing Union Contracts: Efficient Investment and Employment," The Journal of Business, University of Chicago Press, vol. 71(3), pages 349-69, July.
  10. 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, London School of Economics, vol. 42(2), pages 255-281, 06.
  11. Baldwin, Carliss Y, 1983. "Productivity and Labor Unions: An Application of the Theory of Self-Enforcing Contracts," The Journal of Business, University of Chicago Press, vol. 56(2), pages 155-85, April.
  12. Stephen Bond & Dietmar Harhoff & John Van Reenen, 2010. "Investment, R&D and Financial Constraints in Britain and Germany," NBER Chapters, in: Contributions in Memory of Zvi Griliches, pages 433-460 National Bureau of Economic Research, Inc.
  13. 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.
  14. Bronars, Stephen G & Deere, Donald R, 1993. "Unionization, Incomplete Contracting, and Capital Investment," The Journal of Business, University of Chicago Press, vol. 66(1), pages 117-32, January.
  15. 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).
  16. Denny, Kevin & Nickell, Stephen J, 1992. "Unions and Investment in British Industry," Economic Journal, Royal Economic Society, vol. 102(413), pages 874-87, July.
  17. Barry T. Hirsch, 1991. "Labor Unions and the Economic Performance of Unions," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number luepf.
  18. 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.
  19. 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.
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Citations

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Cited by:
  1. Card, David & Devicienti, Francesco & Maida, Agata, 2011. "Rent-Sharing, Hold-up, and Wages: Evidence from Matched Panel Data," IZA Discussion Papers 6086, Institute for the Study of Labor (IZA).
  2. Uwe Jirjahn, 2011. "Gender, Worker Representation and the Profitability of Firms in Germany," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 8(2), pages 281-298, December.
  3. Birgit Schultz, 2006. "Möglichkeiten und Grenzen des Matching-Ansatzes – am Beispiel der betrieblichen Mitbestimmung," IWH Discussion Papers 15, Halle Institute for Economic Research.
  4. Hirsch, Boris, 2007. "Joan Robinson Meets Harold Hotelling : A Dyopsonistic Explanation of the Gender Pay Gap," Discussion Papers 51, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  5. Uschi Backes-Gellner & Simone N. Tuor, 2010. "Avoiding Labor Shortages by Employer Signaling: On the Importance of Good Work Climate and Labor Relations," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 63(2), pages 271-286, January.
  6. 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).
  7. Kriechel, Ben & Mühlemann, Samuel & Pfeifer, Harald & Schuette, Miriam, 2012. "Works Councils, Collective Bargaining and Apprenticeship Training," IZA Discussion Papers 6497, Institute for the Study of Labor (IZA).
  8. 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.
  9. repec:iab:iabzaf:v:38:i:2/3:p:268-283 is not listed on IDEAS
  10. Uwe Jirjahn & Jens Mohrenweiser & Uschi Backes-Gellner, 2009. "Works Councils and Learning: On the Dynamic Dimension of Codetermination," Working Papers 0116, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Nov 2010.
  11. Bellmann, Lutz & Gerner, Hans-Dieter & Hübler, Olaf, 2013. "Investment under Company-Level Pacts," IZA Discussion Papers 7195, Institute for the Study of Labor (IZA).
  12. Birgit Schultz, 2006. "Mikrooekonometrische Evaluation der oekonomischen Wirkungen betrieblicher Mitbestimmung - Moeglichkeiten und Grenzen des Matching-Ansatzes," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 226(5), pages 519-536, September.
  13. G. Cardullo & M. Conti & G. Sulis, 2012. "Sunk Capital, Unions and the Hold-Up Problem: Theory and Evidence from Sectoral Data," Working Paper CRENoS 201226, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  14. Nicole Torka & Jan Kees Looise & Stefan Zagelmeyer, 2011. "Ordinary Atypical Workers, Participation within the Firm and Innovation: A Theoretical Endeavor and Empirical Outlook," management revue. Socio-economic Studies, Rainer Hampp Verlag, vol. 22(3), pages 221-239.

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