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Do Works Councils Inhibit Investment?

  • Addison, John T.

    ()

    (University of South Carolina)

  • Schank, Thorsten

    ()

    (University of Mainz)

  • Schnabel, Claus

    ()

    (University of Erlangen-Nuremberg)

  • Wagner, Joachim

    ()

    (Leuphana University Lüneburg)

Theory suggests that firms confront a hold-up problem in dealing with workplace unionism: unions will appropriate a portion of the quasi rents stemming from long-lived capital. As a result, firms may be expected to limit their exposure to rent seeking by reducing investments, among other things. Although there is some empirical support for this prediction in firm-level studies for the United States, we investigate whether this is also the case in the different institutional context of Germany where the works council is the analogue of workplace unionism. Using parametric and nonparametric methods and establishment panel data, we find no evidence that the formation (dissolution) of a works council has an unfavorable (favorable) impact on investment.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1473.

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Length: 34 pages
Date of creation: Jan 2005
Date of revision:
Publication status: published in: Industrial and Labor Relations Review, 2007, 60 (2), 187-203
Handle: RePEc:iza:izadps:dp1473
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  1. Hübler, Olaf & Jirjahn, Uwe, 2001. "Works Councils and Collective Bargaining in Germany: The Impact on Productivity and Wages," IZA Discussion Papers 322, Institute for the Study of Labor (IZA).
  2. Bronars, Stephen G & Deere, Donald R, 1993. "Unionization, Incomplete Contracting, and Capital Investment," The Journal of Business, University of Chicago Press, vol. 66(1), pages 117-32, January.
  3. Machin, Stephen & Wadhwani, Sushil, 1991. "The Effects of Unions of Investment and Innovation: Evidence from WIRS," Economic Journal, Royal Economic Society, vol. 101(405), pages 324-30, March.
  4. Barry T. Hirsch, 1991. "Labor Unions and the Economic Performance of Unions," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number luepf, June.
  5. Stephen Bond & Dietmar Harhoff & John Van Reenen, 2010. "Investment, R&D and Financial Constraints in Britain and Germany," NBER Chapters, in: Contributions in Memory of Zvi Griliches, pages 433-460 National Bureau of Economic Research, Inc.
  6. Addison, John T & Chilton, John B, 1998. "Self-Enforcing Union Contracts: Efficient Investment and Employment," The Journal of Business, University of Chicago Press, vol. 71(3), pages 349-69, July.
  7. Kirchesch, Kai, 2004. "Financial Risks, Bankruptcy Probabilities, and the Investment Behaviour of Enterprises," HWWA Discussion Papers 299, Hamburg Institute of International Economics (HWWA).
  8. Menezes-Filho, Naercio & Van Reenen, John, 2003. "Unions and Innovation: A Survey of the Theory and Empirical Evidence," CEPR Discussion Papers 3792, C.E.P.R. Discussion Papers.
  9. Hirsch, Barry T. & Prasad, Kislaya, 1995. "Wage-employment determination and a union tax on capital: Can theory and evidence be reconciled?," Economics Letters, Elsevier, vol. 48(1), pages 61-71, April.
  10. 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, 06.
  11. Denny, K. & Nickell, S., 1990. "Unions And Investment In British Industry," Economics Series Working Papers 9992, University of Oxford, Department of Economics.
  12. Paz Espinosa, Maria & Rhee, Changyong, 1989. "Efficient Wage Bargaining as a Repeated Game," The Quarterly Journal of Economics, MIT Press, vol. 104(3), pages 565-88, August.
  13. Addison, John T. & Bellmann, Lutz & Schnabel, Claus & Wagner, Joachim, 2002. "German works councils old and new: incidence, coverage and determinants," Discussion Papers 10, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  14. Baldwin, Carliss Y, 1983. "Productivity and Labor Unions: An Application of the Theory of Self-Enforcing Contracts," The Journal of Business, University of Chicago Press, vol. 56(2), pages 155-85, April.
  15. Addison, John T & Schnabel, Claus & Wagner, Joachim, 2001. "Work Councils in Germany: Their Effects on Establishment Performance," Oxford Economic Papers, Oxford University Press, vol. 53(4), pages 659-94, October.
  16. Connolly, Robert A & Hirsch, Barry T & Hirschey, Mark, 1986. "Union Rent Seeking, Intangible Capital, and Market Value of the Firm," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 567-77, November.
  17. Cameron W. Odgers & Julian R. Betts, 1997. "Do unions reduce investment? Evidence from Canada," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 51(1), pages 18-36, October.
  18. Fallick, Bruce C & Hassett, Kevin A, 1999. "Investment and Union Certification," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 570-82, July.
  19. Bond, Stephen & Van Reenen, John, 2007. "Microeconometric Models of Investment and Employment," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 65 Elsevier.
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