Labor in the Boardroom

127 Pages Posted: 4 Dec 2019

See all articles by Simon Jäger

Simon Jäger

Massachusetts Institute of Technology (MIT); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics; briq- Institute on Behavior & Inequality

Benjamin Schoefer

University of California, Berkeley

Jörg Heining

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

Abstract

We estimate the effects of a mandate allocating a third of corporate board seats to workers (shared governance). We study a reform in Germany that abruptly abolished this mandate for certain firms incorporated after August 1994 but locked it in for the older cohorts. In sharp contrast to the canonical hold-up hypothesis – that increasing labor's power reduces owners' capital investment – we find that granting formal control rights to workers raises capital formation. The capital stock, the capital-labor ratio, and the capital share all increase. Shared governance does not raise wage premia or rent sharing. It lowers outsourcing, while moderately shifting employment to skilled labor. Shared governance has no clear effect on profitability, leverage, or costs of debt. Overall, the evidence is consistent with richer models of industrial relations whereby shared governance raises capital by permitting workers to bargain over investment or by institutionalizing communication and repeated interactions between labor and capital.

Keywords: industrial relations, corporate governance, codetermination, investment

JEL Classification: J0, J53, J54

Suggested Citation

Jäger, Simon and Schoefer, Benjamin and Heining, Jörg, Labor in the Boardroom. IZA Discussion Paper No. 12799. Available at SSRN: https://ssrn.com/abstract=3495776

Simon Jäger (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
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Cambridge, MA 02139-4307
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

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

briq- Institute on Behavior & Inequality ( email )

Schaumburg-Lippe-Straße 5-9
Bonn, 53113
Germany

Benjamin Schoefer

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

Jörg Heining

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

Regensburger Str. 104
Nuremberg, 90478
Germany

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