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Rent Seeking at Plant Level: An Application of the Card-de la Rica Tenure Model to Workers in German Works Councils

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  • John T. Addison

    (Department of Economics, University of South Carolina, Queen’s University Belfast, and GEMF, University of Coimbra)

  • Paulino Teixeira

    () (Faculty of Economics/GEMF, University of Coimbra)

  • Thomas Zwick

    (Munich School of Management, Ludwig-Maximilians University Munich, and Centre for European Economic Research/ZEW, Mannheim)

Abstract

Low-skilled workers enjoy a large wage advantage in German works council establishments. Since job tenure is also longer for these workers, one explanation might be rent-seeking. If the premium is a compensating wage differential (or a return to unmeasured ability), it should not lead to higher tenure; whereas if it is (partly) rent, lower quits should lead to longer tenure at plants with works councils. Our analysis uses the Card and de la Rica (2006) tenure model, and although the association between skill level and the works council tenure gap is positive it fails to achieve statistical significance in a single equation framework. However, running the tenure equation for separate skill quintiles, we find that those with the highest wage premium have the greatest tenure. As a result, although we cannot be certain that the works council wage mark-up of low-skilled workers is necessarily a non-competitive rent, the observed pattern of job tenure across different skill subsamples is not after all inconsistent with rent-seeking behavior.

Suggested Citation

  • John T. Addison & Paulino Teixeira & Thomas Zwick, 2009. "Rent Seeking at Plant Level: An Application of the Card-de la Rica Tenure Model to Workers in German Works Councils," GEMF Working Papers 2009-04, GEMF, Faculty of Economics, University of Coimbra.
  • Handle: RePEc:gmf:wpaper:2009-04
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    References listed on IDEAS

    as
    1. repec:rim:rimwps:13-07 is not listed on IDEAS
    2. Addison, John T. & Teixeira, Paulino & Zwick, Thomas, 2006. "Works Councils and the Anatomy of Wages," IZA Discussion Papers 2474, Institute for the Study of Labor (IZA).
    3. 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.
    4. Card, David, 1996. "The Effect of Unions on the Structure of Wages: A Longitudinal Analysis," Econometrica, Econometric Society, vol. 64(4), pages 957-979, July.
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    More about this item

    Keywords

    works councils; rent seeking; matched employer-employee data; wages; job tenure.;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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