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Rent Seeking, Employment Security, and Works Councils: Theory and Evidence for Germany

Author

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  • Michael Beckmann
  • Silvia Föhr
  • Matthias Kräkel

Abstract

We highlight two effects of a works council that seem contradictory: the rent-seeking effect, which claims that a works council is set up by the workers to extract large rents from their employer, and the employment-security effect, which asserts that a works council is founded if the firm is financially stressed and workers are afraid of being dismissed. since firms realize large rents only in good financial situations, there is a strict trade-off between both effects. We derive both the rent-seeking and the employment-security effects theoretically, then test our theoretical approach with German firm-level data. our econometric analysis clearly supports the rent-seeking effect, but not the employment-security effect.

Suggested Citation

  • Michael Beckmann & Silvia Föhr & Matthias Kräkel, 2010. "Rent Seeking, Employment Security, and Works Councils: Theory and Evidence for Germany," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 62(1), pages 2-40, January.
  • Handle: RePEc:sbr:abstra:v:62:y:2010:i:1:p:2-40
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    Citations

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    Cited by:

    1. Michael Oberfichtner, 2013. "Works council introductions: Do they reflect workers‘ voice?," Working Papers 137, Bavarian Graduate Program in Economics (BGPE).
    2. Beckmann, Michael & Kräkel, Matthias, 2012. "Internal rent seeking, works councils, and optimal establishment size," European Economic Review, Elsevier, vol. 56(4), pages 711-726.
    3. Susanne Prantl & Alexandra Spitz-Oener, 2013. "Interacting Product and Labor Market Regulation and the Impact of Immigration on Native Wages," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2013_22, Max Planck Institute for Research on Collective Goods.
    4. Gralla, Rafael & Kraft, Kornelius, 2012. "Separating Introduction Effects from Selectivity Effects: The Differences in Employment Patterns of Co-Determined Firms," IZA Discussion Papers 7022, Institute for the Study of Labor (IZA).
    5. Christian Grund & Andreas Schmitt, 2013. "Works councils, wages and job satisfaction," Applied Economics, Taylor & Francis Journals, vol. 45(3), pages 299-310, January.
    6. Gralla, Rafael & Kraft, Kornelius, 2012. "Higher Wages, Overstaffing or Both? The Employer's Assessment of Problems Regarding Wage Costs and Staff Level in Co-Determined Establishments," IZA Discussion Papers 7021, Institute for the Study of Labor (IZA).
    7. Oberfichtner, Michael, 2013. "Works council introductions: Do they reflect workers' voice?," Discussion Papers 83, Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
    8. Grund, Christian & Schmitt, Andreas, 2013. "Works Councils, Quits and Dismissals in Germany," IZA Discussion Papers 7361, Institute for the Study of Labor (IZA).
    9. repec:bla:scotjp:v:64:y:2017:i:2:p:143-168 is not listed on IDEAS

    More about this item

    Keywords

    Employment Security; Foundation of a Works council; Rent Seeking;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • M50 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - General

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