Coverage and economic impact of works councils and alternative modes of interest representation in manufacturing and its affiliated industries

Abstract

An empirical analysis based on the IW-Zukunftspanel - a representative survey of companies in manufacturing and affiliated industries - shows that the prevalence of works councils and alternative modes of interest representation is dependent on different conditions. The results suggest that works councils serve as a device to protect quasi-rents. A voluntary established committee, in which the employer and the employee representatives jointly decide company policies, promotes the exploitation of knowledge and superior information provided by the employees. Further analyses reveal that the various modes of interest representation may exert a positiv economic impact in different parts of the productivity distribution. In addition, works councils are more prevalent in firms with lower profits, a feature which might indicate the risk of rent-seeking behaviour by employees' representatives.