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The Impact of Works Councils on Wages

Author

Listed:
  • John T. Addison

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

  • Paulino Teixeira

    () (GEMF and Faculdade de Economia, Universidade de Coimbra)

  • Thomas Zwick

    (CEER/Zentrum für Europäische Wirtschaftsforschung, Mannheim (Germany))

Abstract

This paper investigates for the first time the effect of works councils on the anatomy of wages, using matched employer-employee data from the German LIAB for 2001. We find that works councils are associated with higher earnings. The wage premium is roughly comparable with the combined effect of sectoral and plant collective bargaining proper. This result persists after taking account of worker and establishment heterogeneity and the endogeneity of works council presence. Next, using quantile regressions, we find that the works council premium is decreasing with the position of the worker in the wage distribution. And it is also higher for women than for men. Finally, in addition to attenuating the gender wage gap and reducing wage dispersion, works councils have a small but significantly positive impact on tenure after controlling for wages. This suggests that there is some rent sharing; even if, overall, the entity’s voice effects appear to dominate its monopoly effects.

Suggested Citation

  • John T. Addison & Paulino Teixeira & Thomas Zwick, 2006. "The Impact of Works Councils on Wages," GEMF Working Papers 2006-08, GEMF, Faculty of Economics, University of Coimbra.
  • Handle: RePEc:gmf:wpaper:2006-08
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    File URL: http://gemf.fe.uc.pt/workingpapers/pdf/2006/gemf06_08.pdf
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    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. Card, David E. & De la Rica Goiricelaya, Sara, 2004. "The effect of firm-level contracts on the structure of wages: evidence from matched employer-employee data," DFAEII Working Papers 2004-06, University of the Basque Country - Department of Foundations of Economic Analysis II.
    3. Siebert, Horst, 1997. "Labor market rigidities and unemployment in Europe," Kiel Working Papers 787, Kiel Institute for the World Economy (IfW).
    4. Joan Muysken & Thomas Zwick, 2006. "Wage Divergence and Unemployment: The Impact of Wage Setting Power and Training Costs," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 126(1), pages 1-19.
    5. Addison, John T. & Bellmann, Lutz & Schnabel, Claus & Wagner, Joachim, 2002. "The reform of the German works constitution act: a critical assessment," Discussion Papers 16, Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
    6. repec:mes:challe:v:38:y:1995:i:3:p:53-56 is not listed on IDEAS
    7. 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.
    8. Kölling, Arnd & Schnabel, Claus & Wagner, Joachim, 2002. "Establishment age and wages: evidence from German linked employer-employee data," Discussion Papers 13, Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
    9. 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.
    10. Alda, Holger, 2005. "Datenbeschreibung der Version 1 des LIAB-Längsschnittmodells (LIAB Longitudinal Model Version 1 - Data Description)," FDZ Datenreport. Documentation on Labour Market Data 200503_de, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    11. 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.
    12. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-442, June.
    13. Farber, Henry S, 1994. "The Analysis of Interfirm Worker Mobility," Journal of Labor Economics, University of Chicago Press, vol. 12(4), pages 554-593, October.
    14. John T. Addison & Claus Schnabel & Joachim Wagner, 2006. "The (Parlous) State of German Unions," Working Paper Series in Economics 23, University of Lüneburg, Institute of Economics.
    15. Horn, Henrik & Svensson, Lars E O, 1986. "Trade Unions and Optimal Labour Contracts," Economic Journal, Royal Economic Society, vol. 96(382), pages 323-341, June.
    16. Horst Siebert, 1997. "Labor Market Rigidities: At the Root of Unemployment in Europe," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 37-54, Summer.
    17. John T. Addison & Paulino Teixeira, 2005. "The Effect of Works Councils on Employment Change," GEMF Working Papers 2005-06, GEMF, Faculty of Economics, University of Coimbra.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    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. 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.
    3. Zwick, Thomas, 2007. "Apprenticeship training in Germany - investment or productivity driven?," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 40(2/3), pages 193-204.
    4. Uwe Cantner & Wolfgang Gerstlberger & Ipsita Roy, 2014. "Works Councils, Training Activities and Innovation: A Study of German Firms," Jena Economic Research Papers 2014-006, Friedrich-Schiller-University Jena.
    5. Addison, John T. & Teixeira, Paulino & Evers, Katalin & Bellmann, Lutz, 2013. "Collective Bargaining and Innovation in Germany: Cooperative Industrial Relations?," IZA Discussion Papers 7871, Institute for the Study of Labor (IZA).
    6. repec:iab:iabzaf:v:40:i:2/3:p:193-204 is not listed on IDEAS
    7. Addison, John T. & Bellmann, Lutz & Kölling, Arnd, 2002. "Unions, Works Councils and Plant Closings in Germany," IZA Discussion Papers 474, Institute for the Study of Labor (IZA).
    8. Dilger, Alexander, 1997. "Ertragswirkungen von Betriebsräten: Eine Untersuchung mit Hilfe des NIFA-Panels," Wirtschaftswissenschaftliche Diskussionspapiere 04/1997, University of Greifswald, Faculty of Law and Economics.
    9. Thomas Zwick, 2007. "Apprenticeship Training in Germany? Investment or Productivity Driven?," ZEW Discussion Papers 07-023, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    10. Addison, John T. & Bellmann, Lutz & Schnabel, Claus & Wagner, Joachim, 2002. "The Long Awaited Reform of the German Works Constitution Act," IZA Discussion Papers 422, Institute for the Study of Labor (IZA).

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