Do Works Councils Inhibit Investment?

John T. Addison, University of South Carolina, Queen's University (Belfast, U.K.), and University of Coimbra/GEMF, Portugal
Thorsten Schank, Institute of Economics, University of Erlangen-Nuernberg
Claus Schnabel, Institute of Economics, University of Erlangen-Nuernberg
Joachim Wagner, Institute of Economics, University of Lueneburg

Abstract

Theory suggests that firms confront a hold-up problem in dealing with workplace unionism: unions will appropriate a portion of the quasi-rents stemming from long-lived capital. As a result, firms may be expected to limit their exposure to rent-seeking by reducing investments. The U.S. evidence points clearly in this direction. The authors of this paper investigate whether the same is true for German works councils, the analogue of workplace unionism in that nation. Using establishment panel data for the years 1998-2003, they find no evidence that a works council's formation adversely affected investment or that its dissolution favorably affected investment.

Recommended Citation

Addison, John T.; Schank, Thorsten; Schnabel, Claus; and Wagner, Joachim (2007) "Do Works Councils Inhibit Investment?," Industrial & Labor Relations Review, Vol. 60, No. 2, article 2.
Available at: http://digitalcommons.ilr.cornell.edu/ilrreview/vol60/iss2/2