This paper is the first study to investigate the impact of workplace representation on plant closings in Germany, using data from a nationally representative establishment panel. Across all establishments in our sample, we find evidence of a positive association between works council presence and plant closings. There is the contrary suggestion that industry-wide collective bargaining plays a neutral to benign role. As for the interaction between collective bargaining and workplace representation, this appears strongest for establishments with fewer than 50 employees: such plants are much more likely to close if they have a works council and are not covered by a collective agreement. Copyright Blackwell Publishing Ltd/London School of Economics 2004.

This paper examines the comprehensive discussion on the relationship between job creation, or destruction and firm size. More specifically, the study will determine whether the argument about small‐ and medium‐sized enterprises (SMEs) showing higher employment dynamics is confirmed or not. As such, the following work applies elasticities from a standard labor demand model derived from the estimations of fractional probit models for panel data, as process recommended in Papke and Wooldridge [2008; Journal of Econometrics 145(1–2): 121–133]. Elasticities are a useful measure of employment dynamics, if it is assumed that SMEs act on the same markets. The elasticity results from German establishment data illustrate that firm size does matter for the increase or decrease of employment. SMEs with less than 10 workers exhibit a higher employment dynamic, compared with other entities, at each respective percentile in the distribution of the wage share. Additionally, the outcome of the analysis weakly confirms the hypothesis that smaller firms are more restricted to capital markets, compared with large entities. The results also illustrate that firm size only explains one aspect of job creation and destruction. As stated in the well‐known Hicks–Marshall rules for elasticities of factor demand, the results illustrate that the reaction of labor demand on economic changes increases with the share of labor. Firms with a high share of labor also have larger elasticities, compared with firms with a strong use of capital. Both effects, the size effect and the effect of the proportion of labor, would blend in reality, and therefore, possibly lead to controversial results for the relationship between firm size and employment dynamics. In addition, a model with a negative relationship among both variables is too simple to explain the behavior of firms.

Models of labor demand usually use cost or production functions to derive profit‐maximizing firm performance. These models often rely on the assumption of symmetrical behavior, i.e., the response to a positive or negative wage shock of the same relative size is identical to the shock, and the estimated labor demand elasticities are the same for increasing and decreasing employment. However, behavioral economics models like loss aversion and endowment effects question the assumption of symmetry in labor demand. In addition, the influence of a labor shortage should be reflected in the investigations. Estimations of Fractional Panel Probit models for three different skill levels are applied to evaluate these findings with a large panel of German establishments. The results indicate asymmetrical structures for long‐run own‐wage elasticities and for some cross‐wage elasticities, putting some doubt on the assumption of strict rationality in labor demand and indicating the influence of labor shortages.

Summary This study aimed to analyse the impact of public economic promotion on the performance of establishments. Using data from the German Institute for Employment Research (IAB) establishment panel from 1996 through 2009, we studied the effect of public funding on a number of indicators that provide insight into the topic. For this purpose, conditional difference‐in‐differences estimators were derived using a propensity score matching approach. Supported establishments were found to invest more and request more labour when the amount of public funding is considered. However, on average, establishments that have a history of previous investments also have a higher probability to receive funding than other entities. On the other hand, the evidence suggests that funded establishments reduce their investments shortly before funding. This could point to changes in the behaviour of the establishments, because of the expected economic promotion. Also, it seems that the results are permanent, when the analysis is conducted with natural values instead of logarithms. Other effects of economic promotion in Germany include increases in employment, value added and productivity.