Separating Introduction Effects from Selectivity Effects: The Differences in Employment Patterns of Co-Determined Firms

Abstract

This study examines differences in employment growth between firms with and without works councils by separating introduction effects from potential selectivity effects. Using a difference in differences framework, we show that firms with works councils have higher employment growth before establishing a works council. However, employment growth declines after introduction. We identify the reason for lower employment growth in reduced hiring rates but constant dismissal rates.

Keywords: works councils, hires, dismissals, employment growth, difference-in-differences

JEL Classification: J53, J63, C23, M54