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The Long Awaited Reform of the German Works Constitution Act

  • Addison, John T.

    ()

    (University of South Carolina)

  • Bellmann, Lutz

    ()

    (Institute for Employment Research (IAB), Nuremberg)

  • Schnabel, Claus

    ()

    (University of Erlangen-Nuremberg)

  • Wagner, Joachim

    ()

    (Leuphana University Lüneburg)

German law guaranteeing works councils is not a datum. The thrust of legislation has changed significantly on a number of occasions since 1920. The most recent legal change in the form of the Works Constitution Reform Act marks a controversial swing in favor of works council formation and authority. The present paper evaluates the new legislation from an economic perspective. We link the crucial terms of the new legislation to extant empirical evidence on the incidence of works councils, the availability of alternative employee involvement mechanisms, and the impact of the institution on performance by establishment size. Given the limitations of the evidence, which are shown to have relaxed the constraints on legislative innovation, we also offer some new empirical findings based on a matched-plants approach, using a nationally representative sample of establishments. This empirical strategy in principle offers improved estimates of the effects of works councils on establishment performance. Although the results of this exercise differ somewhat from earlier analyses, they provide little support for the recent legislative changes.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 422.

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Length: 46 pages
Date of creation: Feb 2002
Date of revision:
Publication status: published in: Industrial Relations, 2004, 43 (2), 392-420
Handle: RePEc:iza:izadps:dp422
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References listed on IDEAS
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  1. 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, 09.
  2. Richard B. Freeman & Edward P. Lazear, 1994. "An Economic Analysis of Works Councils," NBER Working Papers 4918, National Bureau of Economic Research, Inc.
  3. 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 537-54.
  4. Barbara Sianesi, 2001. "Propensity score matching," United Kingdom Stata Users' Group Meetings 2001 12, Stata Users Group, revised 23 Aug 2001.
  5. Addison, John T & Schnabel, Claus & Wagner, Joachim, 1996. "German Works Councils, Profits, and Innovation," Kyklos, Wiley Blackwell, vol. 49(4), pages 555-82.
  6. David Neumark & Peter Cappelli, 1999. "Do "High Performance" Work Practices Improve Establishment-Level Outcomes?," NBER Working Papers 7374, National Bureau of Economic Research, Inc.
  7. Addison, John T. & Schnabel, Claus & Wagner, Joachim, 2000. "Die mitbestimmungsfreie Zone aus ökonomischer Sicht," Discussion Papers 1, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  8. John T. Addison & Paulino Teixeira & Thomas Zwick, 2006. "The Impact of Works Councils on Wages," GEMF Working Papers 2006-08, GEMF - Faculdade de Economia, Universidade de Coimbra.
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