Rent Seeking, Employment Security, and Works Councils: Theory and Evidence for Germany
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.
Volume (Year): 62 (2010)
Issue (Month): 1 (January)
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