Works councils and collective bargaining in Germany:: The impact on productivity and wages

This paper investigates the interaction between establishment-level codetermination and industry-level collective bargaining in Germany. Based on a bargaining model, we derive our main hypothesis: In establishments covered by collective bargaining agreements, works councils are more likely to be engaged in productivity enhancing activities and less engaged in rent-seeking activities than their counterparts in uncovered establishments. Our empirical analysis confirms this hypothesis. The presence of works councils exerts a positive impact on productivity v within the covered industrial relations regime but not within the uncovered regime. The presence of works councils has a positive effect on wages within the uncovered regime but not to the same degree within the covered regime.