Board-level Employee Representation (BLER) and Firms' Responses to Crisis

Abstract

We hypothesize that companies with board-level employee representation (BLER) experience a lower probability of crisis-induced dismissals than other firms. Theoretically, we link this effect to the employee directors’ ability to reduce the information asymmetry and moral hazard in employee-employer contracting, thereby facilitating the implementation of labor-cost adjustments that are an alternative to workforce dismissals. We confirm our hypotheses by analyzing the behavior of Scandinavian public corporations with/without employee directors during the Great Recession.

Keywords: Industrial relations, board of directors, employee directors, employment, labor costs, Great Recession

JEL Classification: L00, G3, J53