This paper provides the first comprehensive examination of the effect of German works councils on wages, using matched employer-employee data from the German LIAB for 2001. We find that works councils are associated with higher earnings: the wage premium is around 11 percent, and is higher under formal collective bargaining. This result persists after taking account of worker and establishment heterogeneity and the endogeneity of works council presence. Using quantile regressions, we further report that the works council premium is decreasing in the position of the worker in the wage distribution; and is higher for women than for men. Finally, the works council wage premium is associated with longer job tenure, which suggests that some of the premium is a noncompetitive rent. That said, it remains entirely possible that works council ÔvoiceÕ may dominate its distributive effects, at least insofar as the tenure result is concerned.
This paper provides a comprehensive examination of the effect of German works councils on wages, using matched employer-employee data from the German LIAB for 2001. In general, we find that works councils are associated with higher earnings, even after accounting for worker and establishment heterogeneity. At this level, the works council premium exceeds the collective bargaining mark-up, and is modestly higher in the presence of collective bargaining once we account for worker selection into the two institutions. More specifically, works councils do seem to benefit women relatively and to build on collective bargaining in this regard. They also seem to favor foreign, east-German, and service-sector workers although the effects of collective bargaining are not always reinforcing. The evidence from quantile regressions suggests that only in conjunction with collective bargaining is the narrowing influence of works councils really clear-cut. The above findings pertain to workers in all plants. Once we consider smaller establishments with 21-100 employees, however, each of these results is further qualified, beginning with the effect on wage levels where premia are now only observed in conjunction with collective bargaining.
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