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Separating Introduction Effects from Selectivity Effects: The Differences in Employment Patterns of Co-Determined Firms

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  • Gralla, Rafael

    (TU Dortmund)

  • Kraft, Kornelius

    (TU Dortmund)

Abstract

This study examines differences in employment growth between firms with and without works councils by separating introduction effects from potential selectivity effects. Using a difference in differences framework, we show that firms with works councils have higher employment growth before establishing a works council. However, employment growth declines after introduction. We identify the reason for lower employment growth in reduced hiring rates but constant dismissal rates.

Suggested Citation

  • Gralla, Rafael & Kraft, Kornelius, 2012. "Separating Introduction Effects from Selectivity Effects: The Differences in Employment Patterns of Co-Determined Firms," IZA Discussion Papers 7022, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp7022
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    References listed on IDEAS

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    1. Addison, John T. & Teixeira, Paulino & Zwick, Thomas, 2006. "Works Councils and the Anatomy of Wages," IZA Discussion Papers 2474, Institute of Labor Economics (IZA).
    2. 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.
    3. Uwe Jirjahn, 2008. "Works Councils and Employment Growth: - A Reply to Addison and Teixeira," Industrielle Beziehungen - Zeitschrift fuer Arbeit, Organisation und Management - The German Journal of Industrial Relations, Rainer Hampp Verlag, vol. 15(4), pages 436-448.
    4. 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.
    5. Uwe Jirjahn, 2010. "Works councils and employment growth in German establishments," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 34(3), pages 475-500.
    6. Uwe Jirjahn & Jens Mohrenweiser & Uschi Backes‐Gellner, 2011. "Works Councils and Learning: On the Dynamic Dimension of Codetermination," Kyklos, Wiley Blackwell, vol. 64(3), pages 427-447, August.
    7. Uwe Jirjahn, 2009. "The Introduction of Works Councils in German Establishments — Rent Seeking or Rent Protection?," British Journal of Industrial Relations, London School of Economics, vol. 47(3), pages 521-545, September.
    8. Uwe Jirjahn & Kornelius Kraft, 2010. "Teamwork And Intra‐Firm Wage Dispersion Among Blue‐Collar Workers," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(4), pages 404-429, September.
    9. 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 659-694, October.
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    11. Olaf Hübler & 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.
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    14. Michael Beckmann & Silvia Föhr & Matthias Kräkel, 2010. "Rent Seeking, Employment Security, and Works Councils: Theory and Evidence for Germany," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 62(1), pages 2-40, January.
    15. Carola M. Frege, 2002. "A Critical Assessment of the Theoretical and Empirical Research on German Works Councils," British Journal of Industrial Relations, London School of Economics, vol. 40(2), pages 221-248, June.
    16. Kraft Kornelius & Lang Julia, 2008. "The Causes and Consequences of Adopting a Works Council," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 228(5-6), pages 512-532, October.
    17. Jensen, Michael C & Meckling, William H, 1979. "Rights and Production Functions: An Application to Labor-managed Firms and Codetermination," The Journal of Business, University of Chicago Press, vol. 52(4), pages 469-506, October.
    18. Guertzgen, Nicole, 2007. "Job and Worker Reallocation in German Establishments: The Role of Employers? Wage Policies and Labour Market Institutions," ZEW Discussion Papers 07-084, ZEW - Leibniz Centre for European Economic Research.
    19. Felix R. Fitzroy & Kornelius Kraft*, 1985. "Unionization, Wages and Efficiency," Kyklos, Wiley Blackwell, vol. 38(4), pages 537-554, November.
    20. Schultz Birgit, 2006. "Mikroökonometrische Evaluation der ökonomischen Wirkungen betrieblicher Mitbestimmung - Möglichkeiten und Grenzen des Matching-Ansatzes / Microeconometric Evaluation of Economic Effects of Workers Par," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 226(5), pages 519-536, October.
    21. 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 of Labor Economics (IZA).
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Tobias Brändle & Laszlo Goerke, 2018. "The one constant: a causal effect of collective bargaining on employment growth? Evidence from German linked‐employer‐employee data," Scottish Journal of Political Economy, Scottish Economic Society, vol. 65(5), pages 445-478, November.
    2. Fackler, Daniel & Schnabel, Claus & Stegmaier, Jens, 2024. "Personnel adjustments during the Covid-19 pandemic: did co-determination make a difference?," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 58, pages 1-4.
    3. Simon Jäger & Shakked Noy & Benjamin Schoefer, 2022. "What Does Codetermination Do?," ILR Review, Cornell University, ILR School, vol. 75(4), pages 857-890, August.
    4. Daniel Arnold & Tobias Brändle & Laszlo Goerke, 2018. "Sickness Absence and Works Councils: Evidence from German Individual and Linked Employer–Employee Data," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 57(2), pages 260-295, April.
    5. Brändle, Tobias & Goerke, Laszlo, 2018. "The One Constant: A Causal Effect of Collective Bargaining on Employment Growth?," IZA Discussion Papers 11518, Institute of Labor Economics (IZA).
    6. Steffen Mueller & Jens Stegmaier, 2017. "The Dynamic Effects of Works Councils on Labour Productivity: First Evidence from Panel Data," British Journal of Industrial Relations, London School of Economics, vol. 55(2), pages 372-395, June.
    7. Kraft, Kornelius & Lammers, Alexander, 2021. "The Effects of Reforming a Federal Employment Agency on Labor Demand," IZA Discussion Papers 14629, Institute of Labor Economics (IZA).
    8. Oberfichtner, Michael, 2013. "Works council introductions: Do they reflect workers' voice?," Discussion Papers 83, Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
    9. Olaf Hübler, 2015. "Do works councils raise or lower firm productivity?," IZA World of Labor, Institute of Labor Economics (IZA), pages 137-137, March.
    10. Mohrenweiser, Jens, 2022. "Works Councils," GLO Discussion Paper Series 1103, Global Labor Organization (GLO).

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    More about this item

    Keywords

    employment growth; dismissals; hires; works councils; difference-in-differences;
    All these keywords.

    JEL classification:

    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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