Internal rent seeking, works councils, and optimal establishment size

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractUsing a microeconomic model and data from the Establishment Panel of the German Institute for Employment Research, we analyze the optimal establishment size against the background of rent-seeking workers and the influence of works councils. The theoretical part shows that establishment size has a discouragement effect on the level of individual rent seeking but also a quantity effect as the number of rent seekers increases. The interplay of both effects -together with technological considerations -determines whether the employer chooses an inefficiently small or large establishment size. Introduction of a works council restores efficient establishment size although it is purely used as rent-seeking device. Whether the employer benefits from a works council or not, depends on the degree of contract incompleteness and the degree of worker coordination via a works council. The empirical part indicates dominance of the discouragement effect over the quantity effect in establishments without works council. As theoretically predicted, works councils are beneficial by disentangling rent-seeking and production issues, thus eliminating the influence of the two rent-seeking effects.

Flexible collective bargaining agreements: Still a moderating effect on works council behaviour?

“…To measure rent seeking and rent generation, different variables can be used, for example, firm profits or quasi‐rents. We employ two variables often preferred in the literature (see Mueller, ; Beckmann & Kräkel, ; Hirsch & Mueller, ). As regards rent seeking, we compute the average wage level per plant, that is, the monthly sum of salaries in a plant divided by the number of employees working in the plant .…”

“…We have performed analyses where we divide the dependent variables by full‐time equivalents or hours worked in the plant instead of employees. We have also performed robustness checks using sales per employee instead of value added, as some authors argue that plants that do not supply information on intermediates are nonrandomly missing in this context (see, e.g., Beckmann & Kräkel, ). We have also performed analysis using nonaveraged outcome variables and have included the log of employees as a control variable instead (see, e.g., Hirsch & Mueller, ).…”

“…An alternative strategy in the literature uses the total monthly wage sum or total value added, while respectively adding the number of employees as a control variable (see, e.g., Hirsch & Mueller, ). Jirjahn () and Beckmann and Kräkel () have argued for a positive effect of firm size on wages and productivity. By dividing by the number of employees, we implicitly assume a similar restriction, while additionally controlling for heterogeneous firm‐size effects using indicators for different firm size classes.…”

The Dynamic Effects of Works Councils on Labour Productivity: First Evidence from Panel Data

“…One part of this literature estimates effects on plant productivity (Addison et al . ; Mueller ), profitability (Addison and Wagner ; Beckmann and Kraekel ; Mueller ) or wages (Addison et al . ).…”

We Want Them All Covered! Collective Bargaining and Firm Heterogeneity: Theory and Evidence from Germany

“…However, when using information on intermediate inputs, there is selection bias, because a large number of plants do not provide information on intermediates and this information is not missing at random (cf. Beckmann and Kräkel 2012). We have checked the results using other denominators such as full-time equivalents or standard-hours worked.…”