Corporate governance, entrenched labor, and economic growth
The German system of codetermination contributes to the entrenchment of labor. We show in a two-period model of project choice that entrenched labor leads to underinvestment and overstaffing. We provide empirical evidence that German firms subject to codetermination with equal representation of workers on supervisory boards during 1989-93 were, on average, overstaffed. In addition, the fraction of employees in codetermined firms has decreased over time. The expanded reach of codetermination during the mid-1970s therefore may have contributed to the deterioration of German economic growth performance beginning at about that time through underinvestment, overstaffing, and costly migration of business activity away from firms subject to codetermination.
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- Gary Gorton & Frank Schmid, 2000.
"Class Struggle Inside the Firm: A Study of German Codetermination,"
Center for Financial Institutions Working Papers
00-36, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Gary Gorton & Frank Schmid, 2000. "Class Struggle Inside the Firm: A Study of German Codetermination," NBER Working Papers 7945, National Bureau of Economic Research, Inc.
- Gary Gorton & Frank Schmid, 2002. "Class struggle inside the firm: a study of German codetermination," Working Papers 2000-025, Federal Reserve Bank of St. Louis.
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- Franks, Julian R & Mayer, Colin, 2001.
"Ownership and Control of German Corporations,"
CEPR Discussion Papers
2898, C.E.P.R. Discussion Papers.
- Colin Mayer & Julian Franks, 2000. "Ownership and Control of German Corporations," Economics Series Working Papers 2001-FE-11, University of Oxford, Department of Economics.
- Julian Franks & Colin Mayer, 2001. "Ownership and Control of German Corporations," OFRC Working Papers Series 2001fe11, Oxford Financial Research Centre.
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