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Works councils and environmental investment: Theory and evidence from German panel data

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  • Askildsen, Jan Erik
  • Jirjahn, Uwe
  • Smith, Stephen C.

Abstract

Firms may underinvest in local environmental protection even from the private viewpoint of its owners and employees, but works councils may help mitigate this problem. We show that increases in environmental investments when councils are present could be employee-led, firm-led, or jointly-led. We test these alternatives with German panel data using a random effects probit model, and find a strong and robust relationship between investments in improving local environmental quality and council activities. This effect is largest and most significant when the council is active in environmental matters, and when management views employee participation as productive. With the exception of product innovation, we generally do not find analogous effects on investments that reduce environmental impacts more remote from the workplace, or for other types of investment. We conclude that the higher environmental investments in establishments with councils are largely employee-led or jointly-led; but the significant effect of management attitudes toward participation suggests that genuine management-employee cooperation and the tradeoffs it implies is taking place.
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Suggested Citation

  • Askildsen, Jan Erik & Jirjahn, Uwe & Smith, Stephen C., 2006. "Works councils and environmental investment: Theory and evidence from German panel data," Journal of Economic Behavior & Organization, Elsevier, vol. 60(3), pages 346-372, July.
  • Handle: RePEc:eee:jeborg:v:60:y:2006:i:3:p:346-372
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    More about this item

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law

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