Rent Seeking, Employment Security, and Works Councils: Theory and Evidence for Germany
Schmalenbach Business Review, Vol. 62, pp. 2-40, January 2010
39 Pages Posted: 21 Feb 2010
Date Written: January 1, 2010
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.
Keywords: Employment Security, Foundation of a Works Council, Rent Seeking
JEL Classification: C23, J53, M50
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Works Councils and Collective Bargaining in Germany: The Impact on Productivity and Wages
By Olaf Hübler and Uwe Jirjahn
-
The Course of Research into the Economic Consequences of German Works Councils
By John T. Addison, Claus Schnabel, ...