IDEAS home Printed from https://ideas.repec.org/a/sae/ilrrev/v60y2007i2p187-203.html
   My bibliography  Save this article

Do Works Councils Inhibit Investment?

Author

Listed:
  • John T. Addison
  • Thorsten Schank
  • Claus Schnabel
  • Joachim Wagner

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. The U.S. evidence points clearly in this direction. The authors of this paper investigate whether the same is true for German works councils, the analogue of workplace unionism in that nation. Using establishment panel data for the years 1998–2003, they find no evidence that a works council's formation adversely affected investment or that its dissolution favorably affected investment.

Suggested Citation

  • John T. Addison & Thorsten Schank & Claus Schnabel & Joachim Wagner, 2007. "Do Works Councils Inhibit Investment?," ILR Review, Cornell University, ILR School, vol. 60(2), pages 187-203, January.
  • Handle: RePEc:sae:ilrrev:v:60:y:2007:i:2:p:187-203
    DOI: 10.1177/001979390706000202
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/001979390706000202
    Download Restriction: no

    File URL: https://libkey.io/10.1177/001979390706000202?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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, June.
    2. Kirchesch, Kai, 2004. "Financial Risks, Bankruptcy Probabilities, and the Investment Behaviour of Enterprises," HWWA Discussion Papers 299, Hamburg Institute of International Economics (HWWA).
    3. Fallick, Bruce C & Hassett, Kevin A, 1999. "Investment and Union Certification," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 570-582, July.
    4. 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.
    5. O. Ashenfelter & D. Card (ed.), 1999. "Handbook of Labor Economics," Handbook of Labor Economics, Elsevier, edition 1, volume 3, number 3.
    6. John T. Addison & Claus Schnabel (ed.), 2003. "International Handbook of Trade Unions," Books, Edward Elgar Publishing, number 2705.
    7. Kirchesch, Kai, 2004. "Financial Risks, Bankruptcy Probabilities, and the Investment Behaviour of Enterprises," Discussion Paper Series 26185, Hamburg Institute of International Economics.
    8. Heckman, James J. & Lalonde, Robert J. & Smith, Jeffrey A., 1999. "The economics and econometrics of active labor market programs," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 31, pages 1865-2097, Elsevier.
    9. 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.
    10. 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, November.
    11. John Benson, 1994. "The Economic Effects of Unionism on Japanese Manufacturing Enterprises," British Journal of Industrial Relations, London School of Economics, vol. 32(1), pages 1-21, March.
    12. Van Reenen, John & Menezes-Filho, Naercio, 2003. "Unions and Innovation: A Survey of the Theory and Empirical Evidence," CEPR Discussion Papers 3792, C.E.P.R. Discussion Papers.
    13. Olaf Hübler & 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, September.
    14. Denny, Kevin & Nickell, Stephen J, 1992. "Unions and Investment in British Industry," Economic Journal, Royal Economic Society, vol. 102(413), pages 874-887, July.
    15. 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 155-185, April.
    16. John T. Addison & Thorsten Schank & Claus Schnabel & Joachim Wagner, 2007. "Do Works Councils Inhibit Investment?," ILR Review, Cornell University, ILR School, vol. 60(2), pages 187-203, January.
    17. 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.
    18. 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 349-369, July.
    19. 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 567-577, November.
    20. 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 659-694, October.
    21. Cameron W. Odgers & Julian R. Betts, 1997. "Do Unions Reduce Investment? Evidence from Canada," ILR Review, Cornell University, ILR School, vol. 51(1), pages 18-36, October.
    22. Grout, Paul A, 1984. "Investment and Wages in the Absence of Binding Contracts: A Nash Bargining Approach," Econometrica, Econometric Society, vol. 52(2), pages 449-460, March.
    23. Maria Paz Espinosa & Changyong Rhee, 1989. "Efficient Wage Bargaining as a Repeated Game," The Quarterly Journal of Economics, Oxford University Press, vol. 104(3), pages 565-588.
    24. 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 of Labor Economics (IZA).
    25. 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 324-330, March.
    26. Kornelius Kraft & Jörg Stank, 2004. "Die Auswirkungen der gesetzlichen Mitbestimmung auf die Innova-tionsaktivität deutscher Unternehmen," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 124(3), pages 421-449.
    27. 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 117-132, January.
    28. Joel Rogers & Wolfgang Streeck, 1995. "Works Councils: Consultation, Representation, and Cooperation in Industrial Relations," NBER Books, National Bureau of Economic Research, Inc, number roge95-1, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. John T. Addison & Clive R. Belfield, 2004. "Union Voice," Journal of Labor Research, Transaction Publishers, vol. 25(4), pages 563-596, October.
    2. John T. Addison, 2005. "The Determinants Of Firm Performance: Unions, Works Councils, And Employee Involvement/High‐Performance Work Practices," Scottish Journal of Political Economy, Scottish Economic Society, vol. 52(3), pages 406-450, July.
    3. Addison, John T. & Teixeira, Paulino & Evers, Katalin & Bellmann, Lutz, 2013. "Collective Bargaining and Innovation in Germany: Cooperative Industrial Relations?," IZA Discussion Papers 7871, Institute of Labor Economics (IZA).
    4. John T. Addison & Paulino Teixeira & Katalin Evers & Lutz Bellmann, 2017. "Collective Bargaining and Innovation in Germany: A Case of Cooperative Industrial Relations?," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 56(1), pages 73-121, January.
    5. Addison, John T. & Bellmann, Lutz & Kölling, Arnd, 2002. "Unions, Works Councils and Plant Closings in Germany," IZA Discussion Papers 474, Institute of Labor Economics (IZA).
    6. John T. Addison & Thorsten Schank & Claus Schnabel & Joachim Wagner, 2006. "Works Councils in the Production Process," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 126(2), pages 251-283.
    7. S. Dobbelaere, 2003. "Joint Estimation of Price-Cost Margins and Union Bargaining Power for Belgian Manufacturing," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 03/171, Ghent University, Faculty of Economics and Business Administration.
    8. Cardullo, Gabriele & Conti, Maurizio & Sulis, Giovanni, 2015. "Sunk capital, unions and the hold-up problem: Theory and evidence from cross-country sectoral data," European Economic Review, Elsevier, vol. 76(C), pages 253-274.
    9. David Card & Francesco Devicienti & Agata Maida, 2014. "Rent-sharing, Holdup, and Wages: Evidence from Matched Panel Data," Review of Economic Studies, Oxford University Press, vol. 81(1), pages 84-111.
    10. Kornelius Kraft & Jörg Stank & Ralf Dewenter, 2011. "Co-determination and innovation," Cambridge Journal of Economics, Oxford University Press, vol. 35(1), pages 145-172.
    11. Cetrulo, Armanda & Cirillo, Valeria & Landini, Fabio, 2022. "Organized Labour and R&D: Evidence from Italy," GLO Discussion Paper Series 1195, Global Labor Organization (GLO).
    12. Beladi, Hamid & Mukherjee, Arijit, 2017. "Union bargaining power, subcontracting and innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 137(C), pages 90-104.
    13. John T. Addison, 2016. "Collective bargaining systems and macroeconomic and microeconomic flexibility: the quest for appropriate institutional forms in advanced economies," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-53, December.
    14. Barry T. Hirsch, 2008. "Sluggish Institutions in a Dynamic World: Can Unions and Industrial Competition Coexist?," Journal of Economic Perspectives, American Economic Association, vol. 22(1), pages 153-176, Winter.
    15. Laroche, Patrice, 2020. "Unions, Collective Bargaining and Firm Performance," GLO Discussion Paper Series 728, Global Labor Organization (GLO).
    16. Bester, Helmut & Petrakis, Emmanuel, 2004. "Wages and productivity growth in a dynamic monopoly," International Journal of Industrial Organization, Elsevier, vol. 22(1), pages 83-100, January.
    17. Filippo Belloc & Gabriel Burdin & Fabio Landini, 2023. "Advanced Technologies and Worker Voice," Economica, London School of Economics and Political Science, vol. 90(357), pages 1-38, January.
    18. Balsmeier, Benjamin, 2017. "Unions, collective relations laws and R&D investment in emerging and developing countries," Research Policy, Elsevier, vol. 46(1), pages 292-304.
    19. Belloc, Filippo & Burdin, Gabriel & Landini, Fabio, 2022. "Robots, Digitalization, and Worker Voice," GLO Discussion Paper Series 1038, Global Labor Organization (GLO).
    20. Felix FitzRoy & Kornelius Kraft, 2005. "Co‐determination, Efficiency and Productivity," British Journal of Industrial Relations, London School of Economics, vol. 43(2), pages 233-247, June.

    More about this item

    JEL classification:

    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:ilrrev:v:60:y:2007:i:2:p:187-203. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.ilr.cornell.edu .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.