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Works Councils and the Anatomy of Wages

Author

Listed:
  • Addison, John T.

    (Durham University Business School)

  • Teixeira, Paulino

    (University of Coimbra)

  • Zwick, Thomas

    (University of Würzburg)

Abstract

This paper provides the first full examination of the effect of German works councils on wages using matched employer-employee data (specifically, the LIAB for 2001). We find that works councils are associated with higher earnings. The wage premium is around 11 percent (and is higher under collective bargaining). This result persists after taking account of worker and establishment heterogeneity and the endogeneity of works council presence. Next, using quantile regressions, we find that the works council premium is decreasing with the position of the worker in the wage distribution. And it is also higher for women than for men. Finally, the works council wage premium is associated with longer job tenure. This suggests that some of the premium is a noncompetitive rent, even if works council voice may dominate its distributive effects insofar as tenure is concerned.

Suggested Citation

  • Addison, John T. & Teixeira, Paulino & Zwick, Thomas, 2006. "Works Councils and the Anatomy of Wages," IZA Discussion Papers 2474, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp2474
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    References listed on IDEAS

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    1. John T. Addison & Claus Schnabel & Joachim Wagner, 2004. "The Course of Research into the Economic Consequences of German Works Councils," British Journal of Industrial Relations, London School of Economics, vol. 42(2), pages 255-281, June.
    2. Joan Muysken & Thomas Zwick, 2006. "Wage Divergence and Unemployment: The Impact of Wage Setting Power and Training Costs," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 126(1), pages 1-19.
    3. Richard B. Freeman & Edward P. Lazear, 1995. "An Economic Analysis of Works Councils," NBER Chapters, in: Works Councils: Consultation, Representation, and Cooperation in Industrial Relations, pages 27-52, National Bureau of Economic Research, Inc.
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    5. John T. Addison & Paulino Teixeira, 2005. "The Effect of Works Councils on Employment Change," GEMF Working Papers 2005-06, GEMF, Faculty of Economics, University of Coimbra.
    6. Card, David E. & De la Rica Goiricelaya, Sara, 2004. "The effect of firm-level contracts on the structure of wages: evidence from matched employer-employee data," DFAEII Working Papers 1988-088X, University of the Basque Country - Department of Foundations of Economic Analysis II.
    7. Addison, John T. & Bellmann, Lutz & Schnabel, Claus & Wagner, Joachim, 2002. "The reform of the German works constitution act: a critical assessment," Discussion Papers 16, Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
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    9. Alda, Holger, 2005. "Datenbeschreibung der Version 1 des LIAB-Längsschnittmodells (LIAB Longitudinal Model Version 1 - Data Description)," FDZ Datenreport. Documentation on Labour Market Data 200503_de, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    10. Olaf Hübler & Uwe Jirjahn, 2003. "Works Councils and Collective Bargaining in Germany: The Impact on Productivity and Wages," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(4), pages 471-491, September.
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    15. John T. Addison & Claus Schnabel & Joachim Wagner, 2006. "The (Parlous) State of German Unions," Working Paper Series in Economics 23, University of Lüneburg, Institute of Economics.
    16. Felix R. Fitzroy & Kornelius Kraft*, 1985. "Unionization, Wages and Efficiency," Kyklos, Wiley Blackwell, vol. 38(4), pages 537-554, November.
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    18. Edward Renshaw, 1995. "Analysis," Challenge, Taylor & Francis Journals, vol. 38(3), pages 53-56, May.
    19. Richard B. Freeman, 1980. "The Exit-Voice Tradeoff in the Labor Market: Unionism, Job Tenure, Quits," NBER Working Papers 0242, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    matched employer-employee data; wage distribution; works councils; rent seeking; tenure; wages;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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