Rent Seeking at Plant Level: An Application of the Card-de la Rica Tenure Model to Workers in German Works Councils
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.
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- 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).
- John T. Addison & Paulino Teixeira & Thomas Zwick, 2010.
"German Works Councils and the Anatomy of Wages,"
Cornell University, ILR School, vol. 63(2), pages 247-270, January.
- John T. Addison & Paulino Teixeira & Thomas Zwick, 2007. "German Works Councils and The Anatomy of Wages," Working Paper Series 13_07, The Rimini Centre for Economic Analysis, revised Jul 2007.
- John T. Addison & Paulino Teixeira & Thomas Zwick, 2008. "German Works Councils and the Anatomy of Wages," Working Paper Series 11_08, The Rimini Centre for Economic Analysis.
- 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.
- David Card & Sara De La Rica, 2006. "Firm-Level Contracting and the Structure of Wages in Spain," ILR Review, Cornell University, ILR School, vol. 59(4), pages 573-592, July.
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