Investment Under Company-Level Pacts

40 Pages Posted: 2 Feb 2013

See all articles by Lutz Bellmann

Lutz Bellmann

Institute for Employment Research (IAB); Institute for the Study of Labor (IZA)

Hans-Dieter Gerner

Government of the Federal Republic of Germany - Institute for Employment Research (IAB)

Olaf Hübler

University of Hannover; IZA Institute of Labor Economics

Abstract

To improve their competitiveness the companies aim to increase the funds available to finance the necessary investments. In order to reduce wage costs company-specific deviations from industry-level wage contracts are concluded. Company-level pacts between the management and the works council are often preferred in comparison to agreements between employers' association and unions because the former negotiating partners are better informed about the economic situation of a company and have less goal conflicts than the latter. Moreover, these company-level pacts might reduce the "hold-up" problems which arise once specialized investment is made. Therefore, this paper investigates whether such agreements affect firm-level investment. Based on the IAB Establishment Panel Survey 2001-2010 our estimates reveal that the adoption of a company-level pact leads to a higher investment rate than in other firms driven by re-investment. However, the Great Recession has damped this positive influence. From our econometric analysis we cannot detect any increase in investment during the negotiation phase. After the expiration of a CLP, lower reinvestment and a small increase in net investment take place. Furthermore, our econometric results show that the company-level pacts' success depends on the specific measures which are agreed and on the duration of the pacts.

Keywords: industrial relations, pacts for employment and competitiveness, investments

JEL Classification: J50, J52, J53, D24

Suggested Citation

Bellmann, Lutz and Gerner, Hans-Dieter and Hübler, Olaf, Investment Under Company-Level Pacts. IZA Discussion Paper No. 7195. Available at SSRN: https://ssrn.com/abstract=2210855

Lutz Bellmann (Contact Author)

Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany
+49 911 179 3046 (Phone)
+49 911 179 3297 (Fax)

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Hans-Dieter Gerner

Government of the Federal Republic of Germany - Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

Olaf Hübler

University of Hannover ( email )

Institute of Quantitative Economic Research
D-30167 Hannover
Germany
+49 511 762 4794 (Phone)
+49 511 762 3923 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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