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Works Councils in the Production Process

Author

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  • John T. Addison

    (University of South Carolina (U.S.A.), GEMF/Universidade de Coimbra (Portugal) and IZA (Germany))

  • Thorsten Schank

    (Volkswirtschaftliches Institut, Friedrich-Alexander-Universität Erlangen-Nürnberg)

  • Claus Schnabel

    (Volkswirtschaftliches Institut, Friedrich-Alexander-Universität Erlangen-Nürnberg)

  • Joachim Wagner

    (Institut für Volkswirtschaftslehre, Universität Lüneburg, HWWA and IZA)

Abstract

This paper uses data from a nationally representative panel of establishments to estimate the effects of German works councils on firm performance, 1997-2000. We analyze the impact of this institution on sales and sales growth using OLS and fixed effect estimates of a translog production function as well as by employing a model in first differences. With cross section and pooled data, the strong pro-productivity effects of works councils noted in the recent literature prove sensitive to disaggregation – most notably for plants with 21 to 100 employees, where the powers of the council are a datum – even if the coefficient estimates for the works council variable are often substantive. However, the fixed effects estimator yields much smaller works council effects that are (weakly) statistically significant in only one instance, while productivity changes do not differ between plants with and without a works council in the first differences specification. We conclude that reports of positive works council effects on productivity have been much exaggerated. That said, there is no evidence that works councils adversely affect firm performance, as suggested by an earlier empirical literature based on small samples of firms.

Suggested Citation

  • John T. Addison & Thorsten Schank & Claus Schnabel & Joachim Wagner, 2005. "Works Councils in the Production Process," GEMF Working Papers 2005-12, GEMF, Faculty of Economics, University of Coimbra.
  • Handle: RePEc:gmf:wpaper:2005-12
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    References listed on IDEAS

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    1. Brown, Charles & Medoff, James, 1978. "Trade Unions in the Production Process," Journal of Political Economy, University of Chicago Press, vol. 86(3), pages 355-378, June.
    2. FitzRoy, Felix R & Kraft, Kornelius, 1985. "Unionization, Wages and Efficiency: Theories and Evidence from the U.S. and West Germany," Kyklos, Wiley Blackwell, vol. 38(4), pages 537-554.
    3. Barry T. Hirsch, 2004. "What Do Unions Do for Economic Performance?," Journal of Labor Research, Transaction Publishers, vol. 25(3), pages 415-456, July.
    4. Olaf H¸bler & 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.
    5. Fitzroy, Felix R & Kraft, Kornelius, 1987. "Efficiency and Internal Organization: Works Councils in West German Firms," Economica, London School of Economics and Political Science, vol. 54(216), pages 493-504, November.
    6. Freeman, Richard B, 1976. "Individual Mobility and Union Voice in the Labor Market," American Economic Review, American Economic Association, vol. 66(2), pages 361-368, May.
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    Cited by:

    1. Ehrl, Philipp, 2013. "Agglomeration economies with consistent productivity estimates," Regional Science and Urban Economics, Elsevier, vol. 43(5), pages 751-763.
    2. Schnabel Claus, 2016. "United, Yet Apart? A Note on Persistent Labour Market Differences between Western and Eastern Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 236(2), pages 157-179, March.
    3. Blandina Oliveira & Adelino Fortunato, 2008. "The dynamics of the growth of firms: evidence from the services sector," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 35(3), pages 293-312, July.
    4. Beckmann, Michael & Kräkel, Matthias, 2012. "Internal rent seeking, works councils, and optimal establishment size," European Economic Review, Elsevier, vol. 56(4), pages 711-726.
    5. Philipp Ehrl, 2014. "High-wage workers and high-productivity firms - a regional view on matching in Germany," Working Papers 149, Bavarian Graduate Program in Economics (BGPE).
    6. John Addison & Lutz Bellmann & Thorsten Schank & Paulino Teixeira, 2008. "The Demand for Labor: An Analysis Using Matched Employer–Employee Data from the German LIAB. Will the High Unskilled Worker Own-Wage Elasticity Please Stand Up?," Journal of Labor Research, Springer, vol. 29(2), pages 114-137, June.
    7. David Fairris & Philippe Askenazy, 2010. "Works Councils and Firm Productivity in France," Journal of Labor Research, Springer, vol. 31(3), pages 209-229, September.
    8. Joachim Wagner, 2007. "Markteintritte, Marktaustritte und Produktivität Empirische Befunde zur Dynamik in der Industrie," AStA Wirtschafts- und Sozialstatistisches Archiv, Springer;Deutsche Statistische Gesellschaft - German Statistical Society, vol. 1(3), pages 193-203, December.
    9. John T. Addison & Paulino Teixeira & Thomas Zwick, 2010. "German Works Councils and the Anatomy of Wages," ILR Review, Cornell University, ILR School, vol. 63(2), pages 247-270, January.
    10. Adelino Fortunato & Daniel Murta, 2005. "Horizontal Differentiation and the survival of Train and Coach modes in medium range passenger transport, a welfare analysis comprising economies of scope and scale," GEMF Working Papers 2005-15, GEMF, Faculty of Economics, University of Coimbra.
    11. Joachim Wagner, 2011. "One-third Codetermination at Company Supervisory Boards and Firm Performance in German Manufacturing Industries: First Direct Evidence from a New Type of Enterprise Data," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 131(1), pages 91-106.
    12. Kerndler, Martin, 2017. "Wage flexibility of older workers and the role of institutions - evidence from the German LIAB data set," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168160, Verein für Socialpolitik / German Economic Association.
    13. 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.
    14. Jungnickel, Rolf & Keller, Dietmar & Peters, Heiko & Borrmann, Christine, 2008. "International mobility of jobs--Diversion from Western to Eastern locations?," Structural Change and Economic Dynamics, Elsevier, vol. 19(3), pages 260-271, September.
    15. Ellguth, Peter & Gerner, Hans-Dieter & Stegmaier, Jens, 2012. "Wage bargaining in Germany : the role of works councils and opening clauses," IAB Discussion Paper 201205, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    16. Oliver Gürtler & Felix Höffler, 2015. "Monitoring Of Workers And Product Market Competition: The Role Of Works Councils," Economic Inquiry, Western Economic Association International, vol. 53(2), pages 1366-1379, April.
    17. Mueller Steffen, 2008. "Capital Stock Approximation using Firm Level Panel Data: A Modified Perpetual Inventory Approach," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 228(4), pages 357-371, August.
    18. Kornelius Kraft & Julia Lang, 2016. "Just a Question of Selection? The Causal Effect of Profit Sharing on a Firm's Performance," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 55(3), pages 444-467, July.

    More about this item

    Keywords

    strike;

    JEL classification:

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

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