Managerial Perceptions of Works Councils’ Effectiveness in the Netherlands

Although works councils have, by and large, equally extensive legal rights in Germany and the Netherlands, this is the first econometric analysis that investigates the influence of Dutch works councils on firm performance. We use a nationwide Dutch dataset with information on management’s perceptions of the works council’s impact on their establishments’ efficiency and innovation. Inspired by the German study of Jirjahn and Smith (2006, Industrial Relations 45:650–80), we analyze which determinants influence management’s attitude toward employee participation in the Netherlands. Owing to the specifics of our data, we are able to additionally include variables that measure the interaction between management and worker representatives. We establish a preponderant influence emanating from the works council’s role attitude and management’s leadership style.     

The Course of Research into the Economic Consequences of German Works Councils

In her recent survey, Carola Frege concludes that economic analysis of the works council has reached a ‘dead end’. The present paper offers a very different assessment. The evolving economic literature is shown to follow three distinct phases, the last of which contains some of the most positive evaluations to date of works council impact on establishment performance. Although these estimates are exaggerated, and the effects of works councils are likely to be small on average, the new literature redirects our research focus towards factors producing swings around this average, including differences in works council types and their workplace environments.     

Owner‐Managers and the Failure of Newly Adopted Works Councils

Using representative data from the IAB Establishment Panel, we show that the managerial environment has a strong influence on the introduction and survival of works councils. Employees in owner‐managed establishments are less likely to introduce a works council. Moreover, in case of an introduction, the new works council is less likely to survive if the establishment is owner‐managed. The pattern of results even holds in situations that involve positive economic effects of works councils. This suggests that owner‐managers oppose works councils not primarily for economic reasons. Our findings are rather consistent with the hypothesis that owner‐managers oppose co‐determination because it reduces the utility they gain from being the ultimate bosses within the establishment.     

The relationship between works councils and firms’ further training provision in times of technological change

Participating in further training is strategically important for employees to ensure their employability. Particularly for employees in low-skilled jobs, works councils — firm-level organizations that represent employees — constitute an important employee advocacy instrument in European countries, such as France and Germany. With comprehensive co-determination rights, works councils can influence firms’ hiring policies, job design and career paths (e.g. promotions). Using German firm-level data, we empirically investigate the influence of works councils on firms’ training provision for employees in firms below and above the industry level of technology. The results show that works councils have a positive effect on the percentage of employees in general, and of employees in low-skilled jobs in particular, participating in training, but only for firms below the industry level of technology. These results show the importance of works councils in supporting training in such firms and enhancing the employment prospects of employees in low-skilled jobs. In contrast, firms above the industry level of technology invest in training with or without a works council, indicating that the training interests of employers and employees are aligned.     

Worker Participation and Firm Performance: Evidence from Germany and Britain

The Freeman–Lazear works council/worker involvement model is assessed over two distinct industrial relations regimes. In non-union British establishments our measures of employee involvement are associated with improved economic performance, whereas for unionized plants negative results are detected. The suggestion is that local distributive bargaining can cause the wrong level of worker involvement to be chosen. Also consistent with the model is our finding that mandatory works councils do not impair, and may even improve, the performance of larger German establishments. Yet smaller plants with works councils under-perform, illustrating the problem of tailoring mandates to fit heterogeneous populations.     

Works Councils,Collective Bargaining,and Apprenticeship Training – Evidence From German Firms

In this paper, we investigate the effects of works councils on apprenticeship training in Germany. The German law attributes works councils substantial information and co‐determination rights to training‐related issues. Thus, works councils may also have an impact on the cost‐benefit relation of workplace training. Using detailed firm‐level data containing information on the costs and benefits of apprenticeship training, we find that firms with works councils make a significantly higher net investment in training compared to firms without such an institution. We also find that the fraction of former trainees still employed with the same firm 5 years after training is significantly higher in the presence of works councils, thus enabling firms to recoup training investments over a longer time horizon. Furthermore, all works council effects are much more pronounced for firms covered by collective bargaining agreements.     

What Factors Lead Management to Support or Oppose Employee Participation—With and Without Works Councils? Hypotheses and Evidence from Germany

This paper provides the first econometric analysis to distinguish between works councils in establishments where managers have a positive or negative view toward employee involvement in decision making. We similarly distinguish between establishments where no council is present in which management supports or does not support worker participation. We stress the potential role of works councils and participation in motivating employees. Our theoretical analysis and empirical results from German manufacturing establishment data show that the structure of the workforce, principal‐agent problems between owners and managers, collective bargaining, direct employee involvement, human resource management practices, and market strategy and innovativeness all play important roles. Some conflicting conclusions in the works council literature may be due to the failure to distinguish among industrial relations participation regimes characterized by cooperative or uncooperative relationships between works councils and management.     

Family-Friendly Practices and Worker Representation in Germany

The determinants of three employer-provided family-friendly work practices are estimated for German establishments. The presence of a works council stands as a positive determinant of all three practices. When works councils exist in the presence of collective bargaining, their influence tends to reflect the demographics of the workplace. The role of the works council becomes larger when the share of women increases and the share of part-timers decreases. We suggest this is consistent with the voice role of works councils.     

Works Councils and Separations: Voice,Monopoly, and Insurance Effects

Using a large linked employer–employee data set for Germany, we find that the existence of a works council is associated with a lower separation rate to employment, in particular for workers with low tenure. While works council monopoly effects show up in all specifications, clear voice effects are only visible for low tenured workers. Works councils also reduce separations to nonemployment, and this impact is more pronounced for men. Insurance effects only show up for workers with tenure of more than 2 years. Our results indicate that works councils to some extent represent the interests of a specific clientele.     

The Dynamic Effects of Works Councils on Labour Productivity: First Evidence from Panel Data

We estimate dynamic effects of works councils on labour productivity using newly available information from West German establishment panel data. Conditioning on plant fixed effects and control variables, we find negative productivity effects during the first five years after council introduction but a steady and substantial increase in the councils’ productivity effect thereafter. Our findings support a causal interpretation for the positive correlation between council existence and plant productivity that has been frequently reported in previous studies.     

On the Determinants of Mandatory Works Councils in Germany

German works councils are often thought of as operating in all firms that exceed the basic size threshold (of five permanent employees) established under law. Drawing on a new large-scale, representative German data set, we report that only one-fifth of firms in our sample have works councils even if such firms do account for almost three-fourths of employment. The principal factors behind works council presence emerge as fairly conventional: firm size, firm age, branch plant status, the gender composition of the work force, and certain working arrangements. There are also signs of a close relation between workplace union density and council presence. However, some controversial causal links suggested in an earlier econometric literature receive little support.     

Effects of Works Councils on Firm‐Provided Further Training in Germany

Unions are an important indicator of various measures of firm performance in Anglo‐Saxon countries. The same is true for the German analogue of the workplace union, the works council. Using German establishment data, I examine the impact of works councils on further training. I employ pooled logit and count‐data models to analyse the further training activity and intensity of German firms. Because the treatment variable may suffer from endogeneity, I also adopt linear and nonlinear instrumental variable techniques. The analysis reveals a positive impact of works councils on firm‐provided training and provides slightly weaker evidence for firm‐size differentials in workplace representation. I conclude that enhanced management–employee relations foster the training efforts of firms.     

Sickness Absence and Works Councils: Evidence from German Individual and Linked Employer–Employee Data

Using both household and linked employer–employee data for Germany, we assess the effects of nonunion representation in the form of works councils on (1) individual sickness absence rates and (2) a subjective measure of personnel problems due to sickness absence as perceived by a firm's management. We find that the existence of a works council is positively correlated with the incidence and the annual duration of absence. Further, personnel problems due to absence are more likely to occur in plants with a works council.     

Works Councils and Labour Productivity: Looking beyond the Mean

After more than 25 years of empirical investigation, the analysis of works council effects on establishment productivity is still an active field of economic research. I present first evidence for works council regression coefficients along the unconditional log labour productivity distribution in Germany. The highest (lowest) coefficients were found at the bottom (top) of the distribution, which suggests that works councils have the most beneficial effects at low levels of productivity. Importantly, coefficients are positive at each productivity level. The results shed light on a classical theoretical argument concerning moderating factors for the productivity effect of employee participation.     

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

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.     

A Critical Assessment of the Theoretical and Empirical Research on German Works Councils

The article reviews the existing English- and German-speaking literature on the German works council. Three major research topics are discussed: the ontology and typologies of works councils; their current practice and transformation; and their economic outcomes. Although much research has been conducted on the internal functioning of the works council–management relationship, it is clear that we still know little about the determinants of different workplace relations and their outcomes. The article concludes by advocating a reviving research interest in the link between codetermination and political democracy.     

Behind the European Works Councils Directive: The European Commission's Legislative Strategy

The aim of the draft European works councils Directive is to bridge the gap between increasingly transnational corporate decision-making and employees' nationally-defined information and consultation rights. The proposal seeks to accommodate existing national systems of employee representation, but in the UK auxiliary measures would be needed to designate employee representatives in the absence of voluntary trade union recognition by employers. Although the Directive is strongly opposed by the UK government, the Maastricht social policy protocol has boosted its prospects of being adopted by the other 11 EC countries, with important repercussions for UK-based multinationals.     

Works Councils and Unionization: Lessons from South Korea

This study analyzes the impact of effective works councils and unions in large South Korean firms. Following a brief review of economic theory on works councils and the institutional environment of Korean industrial relations, we describe the unique data set used to analyze Korean firm-level labor relations and economic performance. The results of the multivariate analysis show that both effective works councils and unions enhance employee voice on several key personnel practices. In addition, the estimates show that unionization increases wages and reduces turnover, but effective works councils are associated with higher levels of employee satisfaction and somewhat higher productivity. These estimates are consistent with theoretical models that find that carefully designed works councils can enhance employee voice and may increase productivity.     

The Reform of the German Works Constitution Act: A Critical Assessment

Since 1920, the thrust of German law on workplace codetermination has changed on a number of occasions. We describe the latest swing of the legislative pendulum—favoring works council formation and competence—and evaluate the case for it. We provide new information on the extent of works councils before reviewing the evidence on their economic effects, focusing on some new results from matched-plant data. If the former evidence points to a codetermination deficit, this shortfall does not appear to have negative consequences for workplace productivity, profitability, and employment.     

The Microeconomic Impacts of Employee Representatives: Evidence from Membership Thresholds

Employee representatives in firms are a potentially key but not yet studied source of the impact of unions and works councils. Their actions can shape multiple drivers of firm performance, including collective bargaining, strikes, and training. This article examines the impact of union representative mandates by exploiting legal membership thresholds present in many countries. In the case of Portugal, which we examine here, while firms employing up to forty‐nine union members are required to have one union representative; this increases to two (three) union reps for firms with fifty to ninety‐nine (100–199) union members. Drawing on matched employer–employee data on the unionized sector and regression discontinuity methods, we find that a one percentage point increase in the legal union representative/members ratio leads to an increase in firm performance of at least 7 percent. This result generally holds across multiple dimensions of firm performance and appears to be driven by increased training. However, we find no effects of union representatives on firm‐level wages, given the predominance of sectoral collective bargaining.