The Effects of Works Councils on the Employee Substitution Risk in Germany

Abstract

This study examines the impact of works councils on employee substitution potentials in Germany. Recent scholarship – most prominently Belloc et al. (2022) – suggests that works councils reduce the risk of automation for employees across European countries. Germany, with its unique social partnership model, firm-level co-determination, and high automation potential across its dominant industrial sectors, provides an intriguing case for examining works councils’ effect on automation risks in more depth. Therefore, this study replicates Belloc et al. (2022) by applying their framework to Germany using more granular and recent labour market data (BIBB/BAuA). We find no significant association between works councils and employees’ substitution risk tout court. Our findings suggest that the role of works councils in mitigating automation risks is more complex and context-dependent than Belloc et al. (2022) assumed. Rather than opposing workers’ automation per se, firms with works councils seem to prioritize the re- and upskilling of workers affected by automation. This allows firms to boost competitiveness through automation and works councils to protect workers affected by automation from job loss through reskilling. The high context-dependency of works councils’ approaches towards automation demands further research, such as causal event studies and complementary qualitative studies.

Keywords: Works councils, automation, social partnership, further training