Wage effects of works councils and opening clauses: The German case

Abstract

German employment relations are characterized by a distinct dual system. First, working conditions and wages are determined by industry-level collective bargaining agreements. Second, on the establishment-level, the works council is responsible for employer-employee negotiations. However, since the mid-1980s, an increasing number of areas of regulation have been transferred from the industry-to the establishment-level using so-called opening clauses. The analysis in this article relies on rich German establishment data and reveals new insights into the institutional machinery of wage bargaining. While the existence of such clauses is related to higher wages, their application results in wage cuts of roughly the same size. The results also suggest that works councils, on average, are able to prevent the negative wage effects of opening clauses.

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

“…Similar to Ellguth et al (), we find that these effects might be mitigated once an interaction with works council status is introduced. However, the respective coefficients are barely significant, especially when we control for additional variables such as the capital stock of the plant.…”

“…Differences from other studies, for example, Ellguth et al (), emerge because we use a more encompassing sample, that is, also consider uncovered plants and plants with firm‐level agreements.…”

“…It can be the case, however, that the existence of opening clauses causes a price for flexibility effect , that is, higher pay settlements in the form of a higher base wage as a concession to the employees because their wages might be lowered if OCs are applied, see Garloff and Gürtzgen (). Also, the effect might be lower for plants with a works council because it could be anticipated that works councils could, to some extent, prevent concessions in case of the application of flexible measures (Ellguth et al, ).H1a The existence of flexible measures in CBAs has no effect on plant‐level productivity.H1b The existence of flexible measures in CBAs has a positive effect on the wage level.H1c The positive wage effect is smaller in plants with a works council.…”

“…We thus cannot confirm H1c and H2c . We could also conclude that effects found by Ellguth et al () might be driven by selection on variables that are unobserved to them, but observed by us, for example, capital stock…”

“…As regards opening clauses, for example, Ellguth et al () and Garloff and Gürtzgen () find that their existence has very different effects compared to their application. We argue here that the same could be said for the two different types of CLPs.…”