What Factors Lead Management to Support or Oppose Employee Participation—With and Without Works Councils? Hypotheses and Evidence from Germany

Abstract

This paper provides the first econometric analysis to distinguish between works councils in establishments where managers have a positive or negative view toward employee involvement in decision making. We similarly distinguish between establishments where no council is present in which management supports or does not support worker participation. We stress the potential role of works councils and participation in motivating employees. Our theoretical analysis and empirical results from German manufacturing establishment data show that the structure of the workforce, principal-agent problems between owners and managers, collective bargaining, direct employee involvement, human resource management practices, and market strategy and innovativeness all play important roles. Some conflicting conclusions in the works council literature may be due to the failure to distinguish among industrial relations participation regimes characterized by cooperative or uncooperative relationships between works councils and management. * The authors' affiliations are, respectively,

Non-union worker representation, foreign owners, and the performance of establishments

“…The council may negotiate higher wages and less productive work practices that require lower effort by the workers. A second possible scenario is that rent-seeking owners or managers are not interested in long-term cooperation with the workforce (Jirjahn, 2003a;Jirjahn and Smith, 2006). They may rather prefer to maximize short-term profitability by reneging on implicit contracts with the employees.…”

Do works councils raise or lower firm productivity?

“…on new payment methods, the allocation of working hours, and the introduction of technical devices designed to monitor employee performance. The rights of works councils differ from those of unions: they do not have the right to strike or to negotiate on wages [1].…”

“…The presence of highly qualified staff is conducive to cooperative relationships between works councils and management and higher productivity. Whether this increase is driven by the qualification of the workforce or by cooperation between works council and management is an open question [1].…”

“…Works councils can have a positive impact on firm productivity, but only when specific conditions are in place Keywords: works councils, productivity, employment, wages and profit effects KeY fINDINGS 1 …”

Variable Pay, Industrial Relations and Foreign Ownership: Evidence from Germany

“…Specifically, the positive functioning of councils depends on, or at least is reinforced by, positive managerial attitudes toward cooperation. The critical role of managerial attitudes toward works councils and cooperation has been confirmed in both sociological case studies (Frege 2002) and econometric examinations (Jirjahn 2003, Jirjahn and Smith 2006, Pfeifer 2011). This work suggests that more successful outcomes emerge from codetermination when relations between council and management are cooperative.…”