Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in The Economics of Employment ProtectionJohn T. Addison Paulino Teixeira The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent, nonprofit limited liability company (Gesellschaft mit beschränkter Haftung) supported by the Deutsche Post AG. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. The current research program deals with (1) mobility and flexibility of labor markets, (2) internationalization of labor markets and European integration, (3) the welfare state and labor markets, (4) labor markets in transition, (5) the future of work, (6) project evaluation and (7) general labor economics. D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. ABSTRACT The Economics of Employment ProtectionEmpirical investigation of the labor market consequences of employment protection has mushroomed since Lazear's (1990) pioneering study. Having sketched the theoretical background, we chart the course of the modern empirical literature. We focus mainly on dismissals protection, distinguishing between the themes of employment and unemployment development and labor market dynamics proper. Our discussion of employment and unemployment largely deals with the effect of employment protection on levels of these outcome indicators. We distinguish between overall and compositional effects (e.g., by demographic group and type of contract), between developing and industrialized nations, and identify some key control variables. Our discussion of labor market dynamics focuses on the speed of adjustment issue and on gross flows. It also formalizes the link between analyses of levels and changes in variables. At all times potential offsets to the adverse effects of employment protection receive consideration.

Using matched employer-employee data from the German LIAB for 2001 , the authors found that German works councils are in general associated with higher earnings, even after accounting for establishment-and worker heterogeneity. Works council wage premia exceed those of collective bargaining and are higher, in fact, where both institutions are present in the workplace. The authors also found evidence indicating that works councils benefit women relative to men and appear to favor foreign, east-German, and service-sector workers as well. Separate evidence from quantile regressions suggests that the conjunction of works council presence and collective bargaining is important to the narrowing process. In smaller plants even the presence of a works council markup depends on the coexistence of the works council entity with the machinery of collective bargaining. r | ^ he effects of German works councils on -*-most aspects of firm performance -profitability, labor productivity, and employment growth (and, more recently, investment in tangible capital) -have been accorded increased scholarly attention since the late 1980s. (For a review of the developing literature, see Addison et al. 2004b; and, for some recent results on the relationship between works councils and investment, see Addison et al. 2007a) . The effect of works councils on wages, however, has been altogether less well investigated. The dearth of studies in this area seems odd since adverse effects of the entity, where observed, have often been attributed to rent-seeking behavior on the part of works councils and not simply to their role in slowing the process of firm decisionmaking.On closer inspection, however, the comparative neglect of the relationship between works councils and wages can be traced to data limitations. Typically, plant-level data sets used in the performance analyses referred to above contain information only on average wages, derived from information on the overall wage bill and total employment. A proper wage analysis requires the estimation of augmented Mincerian earnings functions on the basis of individual information, which also permits analysis of the wage distribution. The comparatively recent availability of linked employer-employee datasets has made it possible both to look at how works councils affect wage levels -holding constant human capital, demographic, and other individual (and plant) characteristics -and the distribution of wages. This focus is appropriate because it might be argued that

The full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-prot purposes provided that:• a full bibliographic reference is made to the original source • a link is made to the metadata record in DRO • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders.Please consult the full DRO policy for further details. This article investigates collective bargaining trends in the German private sector since 2000. Using data from the IAB Establishment Panel and the German Establishment History Panel, it provides both cross sectional and longitudinal evidence on these developments. It confirms that the hemorrhaging of sectoral bargaining, first observed in the 1980s and 1990s, is ongoing. Furthermore, works councils are also in decline, so that the dual system also displays erosion. For their part, any increases in collective bargaining at firm-level have been minimal in recent years, while the behavior of newly-founded and closing establishments does not seem to lie at the root of a burgeoning collective bargaining free sector. Although there are few obvious signs of an organic reversal of the process, some revitalization of the bargaining system from above is implied by the labor policies of the new coalition government.