Dissonant Works Councils and Establishment Survivability

30 Pages Posted: 23 Jul 2019

See all articles by John T. Addison

John T. Addison

University of South Carolina - Moore School of Business - Department of Economics; IZA Institute of Labor Economics

Philipp Grunau

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

Paulino Teixeira

Universidade de Coimbra - Faculdade de Economia; Center for European Economic Research (ZEW)

Lutz Bellmann

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

Multiple version iconThere are 2 versions of this paper

Date Written: 2019

Abstract

Using subjective information provided by manager respondents on the stance taken by the works council in company decision making, this paper investigates the association between a measure of works council dissonance or disaffection and plant closings in Germany, 2006-2015. The potential effects of worker representation on plant survivability have been little examined in the firm performance literature because of inadequate information on plant closings on the one hand and having to assume homogeneity of what are undoubtedly heterogeneous worker representation agencies on the other. Our use of two datasets serves to identify failed establishments, while the critical issue of heterogeneity is tackled via manager perceptions of works council disaffection or otherwise. The heterogeneity issue is also addressed by considering the wider collective bargaining framework within which works councils are embedded, and also by allowing for works council learning. It is reported that works council dissonance is positively associated with plant closings, although this association is not found for establishments that are covered by sectoral agreements. Taken in conjunction, both findings are consistent with the literature on the mitigation of rent seeking behavior. Less consistent with the recent empirical literature, however, is the association between plant closings and dissonance over time, that is, from the point at which works council dissonance is first observed. Although the coefficient estimate for dissonance is declining with the length of the observation window, it remains stubbornly positive and highly statistically significant. Finally, there is evidence that establishments with dissonant works councils are associated with a much higher probability of transitioning from no collective bargaining to sectoral bargaining coverage over the sample period than their counterparts with more consensual works councils.

Keywords: dissonance, works councils, plant closings, collective bargaining regime, rent seeking, learning

JEL Classification: J510, J530, J650

Suggested Citation

Addison, John T. and Grunau, Philipp and Teixeira, Paulino and Bellmann, Lutz, Dissonant Works Councils and Establishment Survivability (2019). CESifo Working Paper No. 7722. Available at SSRN: https://ssrn.com/abstract=3421149

John T. Addison (Contact Author)

University of South Carolina - Moore School of Business - Department of Economics ( email )

The Francis M. Hipp Building
1705 College Street
Columbia, SC 29208
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803-777-6876 (Fax)

HOME PAGE: http://mooreschool.sc.edu/moore/economics/profiles/addison.htm

IZA Institute of Labor Economics

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

Philipp Grunau

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

Regensburger Str. 104
Nuremberg, 90478
Germany

Paulino Teixeira

Universidade de Coimbra - Faculdade de Economia ( email )

Av. Dias da Silva, 165
Coimbra, 3004-512
Portugal

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

Lutz Bellmann

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

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