The Introduction of Works Councils in German Establishments — Rent Seeking or Rent Protection?

Abstract

Some recent empirical studies seem to suggest that German works councils engage in rent-seeking activities rather than in the creation of joint establishment surplus. However, those cross-sectional studies do not address the issue of causation. We address this issue by investigating the factors that influence the employees' decision to introduce a works council in their establishment. Councils are more likely to be adopted in establishments with a very poor sales situation and poor employment growth. They are also more likely to be adopted in establishments where management does not pursue an expansive market strategy. Altogether, our results support the hypothesis that employees introduce works councils to protect the quasi-rents they have created by their efforts and human capital investments. Copyright (c) Blackwell Publishing Ltd/London School of Economics 2009.

Reciprocity and Workers’ Tastes for Representation

“…Theoretical models stress that organizations of worker representation protect workers' interest by monitoring the employer (Askildsen et al 2006, Freeman and Lazear 1995, Smith 1991 and punishing employer opportunism (Hogan 2001). Empirical research confirms that works councils are more likely to be introduced by the workforce if the employer has a strong incentive to behave opportunistically (Jirjahn 2009, Kraft and Lang 2008, Mohrenweiser et al 2011. There is also evidence that works councils play a specific role in sustaining cooperation and performance in such a situation (Jirjahn 2011, Stettes 2010 Findings by Jirjahn and Smith (2006) suggest that those establishments are more likely to use forms of direct worker participation in order to build cooperative industrial relations.…”

Non-union worker representation, foreign owners, and the performance of establishments

“…Recent studies indicate that works councils are more likely to be adopted in establishments facing a poor economic situation (Jirjahn, 2009(Jirjahn, , 2010Mohrenweiser et al, 2012;Mueller, 2012). In such situation, councils may help workers protect the quasi rents they have created by their efforts or human capital investments.…”

Wage and Employment Effects of Workplace Representation - A 'Right to Co-Manage' Model

“…importantly, a recent empirical study by Jirjahn (2009) finds that works councils are "more likely to be adopted in establishments with a very poor sales situation and poor employment growth". This is indicative of a works council's main objective being promoting more jobs.…”