Do Works Councils Inhibit Investment?

34 Pages Posted: 24 Jan 2005

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

Thorsten Schank

University of Erlangen-Nuremberg

Claus Schnabel

University of Erlangen-Nuremberg; IZA Institute of Labor Economics

Joachim Wagner

University of Lueneburg - Institute of Economics; Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics; IZA Institute of Labor Economics

Date Written: January 2005

Abstract

Theory suggests that firms confront a hold-up problem in dealing with workplace unionism: unions will appropriate a portion of the quasi rents stemming from long-lived capital. As a result, firms may be expected to limit their exposure to rent seeking by reducing investments, among other things. Although there is some empirical support for this prediction in firm-level studies for the United States, we investigate whether this is also the case in the different institutional context of Germany where the works council is the analogue of workplace unionism. Using parametric and nonparametric methods and establishment panel data, we find no evidence that the formation (dissolution) of a works council has an unfavorable (favorable) impact on investment.

Keywords: works councils, investment, Germany

JEL Classification: J50

Suggested Citation

Addison, John T. and Schank, Thorsten and Schnabel, Claus and Wagner, Joachim, Do Works Councils Inhibit Investment? (January 2005). IZA Discussion Paper No. 1473. Available at SSRN: https://ssrn.com/abstract=653083

John T. Addison

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

Thorsten Schank

University of Erlangen-Nuremberg ( email )

Schloßplatz 4
Erlangen, Bavaria 91054
Germany

Claus Schnabel

University of Erlangen-Nuremberg ( email )

Institut für Wirtschaftsforschung
Lange Gasse 20
D-90403 Nuernberg
Germany
+49 911 5302 330 (Phone)
+49 911 5302 721 (Fax)

HOME PAGE: http://https://www.arbeitsmarkt.rw.fau.de/english-version/staff/prof-dr-claus-schnabel/

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Joachim Wagner (Contact Author)

University of Lueneburg - Institute of Economics ( email )

PO Box 2440
D-21314 Luneburg
Germany
+49 4131 677 2330 (Phone)
+49 4131 677 2026 (Fax)

HOME PAGE: http://www.uni-lueneburg.de/wifo

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics ( email )

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D-07745 Jena, 07745
Germany

IZA Institute of Labor Economics

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

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