Works Councils and the Anatomy of Wages
John T. Addison
University of South Carolina - Moore School of Business - Department of Economics; Institute for the Study of Labor (IZA)
Universidade de Coimbra - Faculdade de Economia; Center for European Economic Research (ZEW)
University of Wuerzburg - Business Administration & Economics; Centre for European Economic Research (ZEW); Maastricht University - Research Centre for Education and the Labour Market (ROA)
IZA Discussion Paper No. 2474
This paper provides the first full examination of the effect of German works councils on wages using matched employer-employee data (specifically, the LIAB for 2001). We find that works councils are associated with higher earnings. The wage premium is around 11 percent (and is higher under collective bargaining). This result persists after taking account of worker and establishment heterogeneity and the endogeneity of works council presence. Next, using quantile regressions, we find that the works council premium is decreasing with the position of the worker in the wage distribution. And it is also higher for women than for men. Finally, the works council wage premium is associated with longer job tenure. This suggests that some of the premium is a noncompetitive rent, even if works council voice may dominate its distributive effects insofar as tenure is concerned.
Number of Pages in PDF File: 48
Keywords: matched employer-employee data, rent seeking, tenure, wages, wage distribution, works councils
JEL Classification: J31, J50working papers series
Date posted: January 2, 2007
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