Do works councils inhibit investment?

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Theory suggests that firms confront a hold-up problem in dealing with workplace unionism: unions will appropriate a portion of the quasi-rents stemming from long-lived capital. As a result, firms may be expected to limit their exposure to rent-seeking by reducing investments. The U.S. evidence points clearly in this direction. The authors of this paper investigate whether the same is true for German works councils, the analogue of workplace unionism in that nation. Using establishment panel data for the years 1998-2003, they find no evidence that a works council's formation adversely affected investment or that its dissolution favorably affected investment.

Original languageEnglish
JournalIndustrial and Labor Relations Review
Issue number2
Pages (from-to)187-203
Number of pages17
Publication statusPublished - 01.2007