ABSTRACT: This paper provides a thoretical and empirical evaluation of unions’effects on innovative activity, focussing on institutional details and country‐specific factors. We represent results of an econometric investigation for Germany using data at the industry and establishment level. In contrast to US studies, no statistically significant negative influence of unions on innovative activity shows up from industry‐level data. Establishment‐level data, however, indicate that the presence of a works council is positive for R & D if union density is not “too high”. This is in line with the more cooperative nature of industrial relations in Germany. Copyright © 1994, Wiley Blackwell. All rights reserved