Volume 226, Issue 5

With the reform of the Works Constitution Act in 2001 legislation has tried to stop the erosion of the institution of codetermination by facilating the creation of works councils and expanding their rights. The present paper examines the development of the presence of codetermination with pooled regression models and the impact of works councils on the training of the workforce with matching methods. We used data from the waves 1996-2005 of the IAB Establsihment Panel. The results of our analyses show that establishments with works councils have both a higher incidence and coverage of training of the workforce. However, a significant effect of the reform of the Works Constitution Act cannot be detected empirically.

Using OLS and quantile regression methods and rich cross-section data sets for western and eastern Germany, this paper demonstrates that the impact of works council presence on labor productivity varies between manufacturing and services, between plants that are or are not covered by collective bargaining, and along the conditional distribution of labor productivity. No productivity effects of works councils are found for the service sector and in manufacturing plants not covered by collective bargaining. Besides demonstrating that it is important to look at evidence based on more than one data set, our empirical findings point to the efficacy of supplementing OLS with quantile regression estimates when investigating the behavior of heterogeneous plants.

The evaluation of economic effects of workers participation is not simple from the methodical point of view because of specific characteristics of establishments with works councils. Especially recent studies show contradictory results. In this study problems are pointed out, discussed, and options for solution are presented on the example of workers participation in East German establishments of industry and construction by the IAB-Establishment Panel. An optimal matching-algorithm which supplies good matching-results for small samples to assign ‘statistical establishment-twins’ is applied. But by reason of very short primarily spells it can only calculate short time effects. Therefore, the matching method is additionally used to construct longer observation periods. By this new application establishments with recently founded works councils are matched with so called ‘proxy establishments’ with existing works councils. As a result short observation periods are prolonged and information about long-term effects can be given. The effects on productivity, profitability and qualification level of employees show neither in short-term nor in long-term a significant impact on workers’ participation.

Empirical studies on establishment-level codetermination usually focus on the impact of works councils on firm performance. Using data from the German Socio-Economic Panel, this is the first systematic research to examine the relationship between works councils and job satisfaction. It is shown that the relationship depends on the type of worker. The presence of a works council increases job satisfaction of full-time employed blue-collar workers. In general, councils do not have an influence on full-time employed white-collar workers. However, there is a negative association between works council presence and job satisfaction of managers. Furthermore, the presence of a workers council is associated with lower job satisfaction of non-full-time workers.

There are different kinds of works councils. They can be cooperative or antagonistic for example. There are also different kinds of management. The managers can be friendly or unfriendly to the workers and the works council representing them. Here the mutual relationship between works council and management is analysed. To this end two data sets are connected, the NIFA-Panel with information about mechanical engineering plants in Germany given by the management and the Bochumer survey of works councils in some of these plants. A new typology of the relationship between the works council and the managers of a firm is derived from these combined data. The effects of a positive, neutral or negative relationship on different turnover rates, product innovations and earnings of the firms are empirically analysed. The results are in accordance with prior studies using only separated data for works councils or management. Concretely, turnover and earnings are mostly lower and innovations more probable as long as any kind of works council exists. The kind of relationship influences the magnitudes of these effects and their statistical significance. A positive relationship reduces the departure rate most of all, a negative relationship has the strongest effect on innovations and, unexpectedly, an inconsistent relationship is best for earnings.

Many observers regard the German system of codetermination as a very strong intervention into the working of the capital market. With the introduction of the codetermination law in 1976, employee representatives in limited liability companies with more than 2000 employees are entitled to occupy half of the number of seats and are granted nearly 50% of the voting rights on the supervisory board. We investigate the impact of the introduction of the German codetermination law in 1976 which implied an extension of co-determination from third parity to almost parity on return on equity. Our estimations are based on panel data for 179 companies from 1971 to 1976 and from 1981 to 1986, thus allowing for adjustment to the 1976 law. In contrast to frequently raised fears, no negative impact is found. Our empirical results suggest a positive influence from the 1976 strengthening of co-determination law on return on equity.