An Economic Analysis of Works Councils

42 Pages Posted: 16 May 2000

See all articles by Richard B. Freeman

Richard B. Freeman

National Bureau of Economic Research (NBER); University of Edinburgh - School of Social and Political Studies; Harvard University; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Edward P. Lazear

Stanford Graduate School of Business; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Date Written: November 1994

Abstract

Works councils, found in most Western European economies, are elected bodies of employees with rights to information, consultation, and in some cases co-determination of employment conditions at local workplaces, mandated by law. Many European employers and unions believe that councils improve communication between workers and management, raising social output, while reducing the speed with which decisions are made. This paper analyzes the operation of councils as a means of improving social output by creating more cooperative labor relations. It argues that councils are mandated because the incentive for companies to institute them and delegate them power falls short of the social incentive; that workers provide more accurate information to employers about preferences when councils have some say over how that information is used; and that the communication from employers to workers produces socially desirable worker concessions in bad times that would not occur absent this institution. It compares a jury style random selection of works councilors with selection via elections.

Suggested Citation

Freeman, Richard B. and Lazear, Edward P., An Economic Analysis of Works Councils (November 1994). NBER Working Paper No. w4918. Available at SSRN: https://ssrn.com/abstract=227953

Richard B. Freeman (Contact Author)

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Edward P. Lazear

Stanford Graduate School of Business ( email )

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National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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