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Rent Seeking, Employment Security, and Works Councils: Theory and Evidence for Germany

Author

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  • Michael Beckmann
  • Silvia Föhr
  • Matthias Kräkel

Abstract

We highlight two effects of a works council that seem contradictory: the rent-seeking effect, which claims that a works council is set up by the workers to extract large rents from their employer, and the employment-security effect, which asserts that a works council is founded if the firm is financially stressed and workers are afraid of being dismissed. since firms realize large rents only in good financial situations, there is a strict trade-off between both effects. We derive both the rent-seeking and the employment-security effects theoretically, then test our theoretical approach with German firm-level data. our econometric analysis clearly supports the rent-seeking effect, but not the employment-security effect.

Suggested Citation

  • Michael Beckmann & Silvia Föhr & Matthias Kräkel, 2010. "Rent Seeking, Employment Security, and Works Councils: Theory and Evidence for Germany," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 62(1), pages 2-40, January.
    • Handle: RePEc:sbr:abstra:v:62:y:2010:i:1:p:2-40
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    Citations

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    Cited by:

    1. Beckmann, Michael & Kräkel, Matthias, 2012. "Internal rent seeking, works councils, and optimal establishment size," European Economic Review, Elsevier, vol. 56(4), pages 711-726.
    2. Susanne Prantl & Alexandra Spitz-Oener, 2013. "Interacting Product and Labor Market Regulation and the Impact of Immigration on Native Wages," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2013_22, Max Planck Institute for Research on Collective Goods.
    3. Rafael Gralla & Kornelius Kraft, 2018. "Separating Introduction Effects from Selectivity Effects:Â The Differences in Employment Patterns of Codetermined Firms," LABOUR, CEIS, vol. 32(1), pages 93-111, March.
    4. repec:hum:wpaper:sfb649dp2014-018 is not listed on IDEAS
    5. Christian Grund & Andreas Schmitt, 2013. "Works councils, wages and job satisfaction," Applied Economics, Taylor & Francis Journals, vol. 45(3), pages 299-310, January.
    6. Oberfichtner, Michael, 2013. "Works council introductions: Do they reflect workers' voice?," Discussion Papers 83, Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
    7. Gralla, Rafael & Kraft, Kornelius, 2012. "Higher Wages, Overstaffing or Both? The Employer's Assessment of Problems Regarding Wage Costs and Staff Level in Co-Determined Establishments," IZA Discussion Papers 7021, Institute of Labor Economics (IZA).
    8. Grund, Christian & Schmitt, Andreas, 2013. "Works Councils, Quits and Dismissals in Germany," IZA Discussion Papers 7361, Institute of Labor Economics (IZA).
    9. Christian Dustmann & Bernd Fitzenberger & Uta Schönberg & Alexandra Spitz‑Oener, 2014. "Od chorego człowieka Europy do ekonomicznej megagwiazdy: odradzająca się gospodarka Niemiec," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 6, pages 149-172.
    10. Mohrenweiser, Jens, 2022. "Works Councils," GLO Discussion Paper Series 1103, Global Labor Organization (GLO).
    11. Ochsenfeld, Fabian, 2018. "The Relational Nature of Employment Dualization: Evidence from Subcontracting Establishments," SocArXiv ta4r6, Center for Open Science.
    12. Rafael Gralla & Kornelius Kraft & Stanislav Volgushev, 2017. "The effects of works councils on overtime hours," Scottish Journal of Political Economy, Scottish Economic Society, vol. 64(2), pages 143-168, May.

    More about this item

    Keywords

    Employment Security; Foundation of a Works council; Rent Seeking;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • M50 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - General

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