The Economics of Codetermination: Lessons from the German Experience

183 Pages·2009·2.413 MB·English

by  John T. Addison (auth.)

The Economics of Codetermination
The Economics of
Codetermination
Lessons from the
German Experience
John T. Addison
THE ECONOMICS OF CODETERMINATION
Copyright © John T. Addison, 2009.
Softcover reprint of the hardcover 1st edition 2009 978-0-230-60609-8
All rights reserved.
First published in 2009 by
PALGRAVE MACMILLAN®
in the United States—a division of St. Martin’s Press LLC,
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Where this book is distributed in the UK, Europe and the rest of the world,
this is by Palgrave Macmillan, a division of Macmillan Publishers Limited,
registered in England, company number 785998, of Houndmills,
Basingstoke, Hampshire RG21 6XS.
Palgrave Macmillan is the global academic imprint of the above companies
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ISBN 978-1-349-37338-3 ISBN 978-0-230-10424-2 (eBook)
DOI 10.1057/9780230104242
Library of Congress Cataloging-in-Publication Data
Addison, John T.
The economics of codetermination : lessons from the German
experience / John T. Addison.
p. cm.
Includes bibliographical references and index.
1. Management—Employee participation. I. Title.
HD5650.A313 2009
338.6(cid:2)9—dc22 2009006871
A catalogue record of the book is available from the British Library.
Design by Newgen Imaging Systems (P) Ltd., Chennai, India.
First edition: November 2009
Contents
List of Tables vii
Preface ix
1 Introduction 1
2 Context: What Is Codetermination? 5
3 The Theory of Codetermination 27
4 The Early Econometric Literature on Works Councils 41
5 The Emergence of a More Positive View of Workplace
Codetermination: Evidence from Some Larger Datasets 53
6 The Impact of Workplace Codetermination: Findings
from the Third Phase of Research 69
7 Codetermination at the Enterprise Level 103
8 European Rules for Informing and Consulting Employees
and the European Dimension 123
9 Codetermination in Retrospect and Prospect 141
Notes 147
Bibliography 161
Index 175
Tables
2.1 Estimates of the Fraction of Employees Covered
by Codetermination at Company and Plant Level
in 1984 and 1994/1996 20
2.2 Incidence and Coverage of Works Councils
in Germany in 2007 (in percent) 21
4.1 The Economic Impact of the Works Council—Phase 1
Studies 44
5.1 The Economic Impact of the Works Council—Phase 2
Studies 58
6.1A The Economic Impact of the Works Council
on Productivity, Investment, and Employment—
Phase 3 Studies 73
6.1B The Economic Impact of Innovative Work Practices
and Works Councils on Performance—Phase 3
Studies 85
Preface
T
he origins of this book date back to my first publication on
works councils a little more than 15 years ago. The attraction of
works councils to an uprooted British labor economist working
in the United States and at that time allocating a still significant part of
his research effort to the economics of trade unions was powerful. In
the first place, the theory and practice of works councils offered a much
improved milieu for the study of collective voice than the entity and
country for which that model was first developed—unions in the United
States. More practically, the headlong retreat of unionism at least in the
U.S. private sector threatened to transform what had been a fairly
dynamic Anglo-Saxon research area into a near pathology.
Over the years, with the steady improvement in data sets, docu-
mented here, the economic analysis of German codetermination was to
flourish. Of course, research on works councils predates the attentions
of economists, and indeed had long been the preserve of sociologists.
They have undertaken important work on works councils and at times
must have cringed at the early efforts of economists. Nevertheless, their
work is little mentioned in the present text, not out of criticism but sim-
ply because there has been an explosion of interest by economists in the
subject. It is now time to take stock of the progress we have made, and
that is the aim of the present text.
The next few years will open up new questions that will exercise
economists and other social scientists alike. A more integrative treat-
ment might well be appropriate at that time with the challenge of glob-
alization to the labor movement, the dual system, and corporate
governance alike. There will be much to study and how well German
institutions adapt to heightened regime competition should be of inter-
est to us all. As I have implied, it may even bring sometimes uneasy
bedfellows together. Some protean lines of future inquiry are sketched
in this treatment.
x ● Preface
In writing this book, I owe a heavy debt of gratitude to individuals
and institutions.
To those fellow Europeans with whom I have worked on journal
articles on Mitbestimmung, I clearly owe most of all. This book would
simply have proved impossible to write without the contributions of
Joachim Wagner, Claus Schnabel, Lutz Bellmann, Paulino Teixeira,
Thorsten Schank, Thomas Zwick, Arnd Kölling, and Kornelius Kraft.
I have further to thank, without implicating, my friend Claus Schnabel
for reading and commenting on every single chapter. Thanks are also
due to Stefan Zagelmeyer who though sorely pressed found the time to
comment on chapter 8. In short, I could not ask for better collaborators
and colleagues.
I have to thank institutions, too. Chief among these are the Moore
School of Business at the University of South Carolina and Queen’s
University Management School Belfast. I thank them for providing me
with a first-class research environment. The Moore School’s Center for
International Business Education and Research also funded several trips
to Germany that permitted material progress to be made on the original
research underpinning several chapters in this book. I am also happy to
acknowledge the facilitating role of the Institute for Employment
Research of the German Federal Employment Agency where I have
spent much productive and stimulating time as Research Fellow over
the past few years. To them all, my hearty thanks.
CHAPTER 1
Introduction
T
his book examines employee involvement through representative
agencies. It is less concerned, then, with direct participation
other than in relation to representative participation. And since
the focus is squarely upon German codetermination, or Mitbestimmung
(literally, having a voice in), it is less concerned with that other form of
representative involvement—unionism—than with works councils at
establishment level and board level representation at company or enter-
prise level. That said, although works councils are formally independent
of unions the links are in practice close because (in no particular order
of importance) works councils are embedded within the dual system of
industrial relations in Germany, most works councilors are union mem-
bers, and union nominees sit alongside employee workplace representa-
tives on company boards. It follows that the union-codetermination
nexus cannot be ignored.
The German system of codetermination is more extensive than in
any other European nation. But note that the notion that the interests
of employees be formally and systematically recognized under law is by
no means alien to the European tradition. Indeed, in this regard the
German system is often viewed as an exemplar of participative practice.
Thus, when it comes to policy formation in the European Union,
Germany has often been regarded as a first-pass template for European-
wide mandates. And latterly measures to increase the involvement of
employees in their companies have occupied center-stage in the EU
social space, the most pertinent recent example being national systems
for informing and consulting workers. That said, there is little external
appeal in the German system of board representation and, at this level,
Germany will likely increasingly have to accommodate itself to a cer-
tain convergence of company law and to mandates from without.
2 ● The Economics of Codetermination
Notwithstanding the union-codetermination nexus, the German
experience also has external relevance because of the headlong retreat of
unionism in many countries. Recognizing the benefits to workplace
governance and contract execution associated with unions, might not
new institutions akin to the works council fill the representation gap?
More to the point, might not works councils be advantageous in such
countries, especially if they offer the prospect of detaching production
issues from questions of distribution? It follows that quite apart from its
intrinsic interest, German codetermination is of wider concern.
Mitbestimmung in Germany has a long history and has been the sub-
ject of considerable economic investigation. Even so, economic issues
have received comparatively minor attention in the public policy debate
in that country that has been more preoccupied with notions of indus-
trial democracy/democratic deficits and issues of fairness. Our concern
is to redress the imbalance by bringing economic issues to the forefront.
This is because commentators impressed with the ideas that codetermi-
nation fosters a well-functioning social democracy and helps to prevent
divisions in society have taken it as read that what is good for social
cohesion and industrial relations is necessarily good for economic suc-
cess. Is this the case?
To this end, having set the scene by outlining the long history of code-
termination (legislation dates back to 1920 and its antecedents to 1848),
including the most recent changes to the Works Constitution Act, we will
examine the theory of and evidence pertaining to codetermination. For
its part, the theory is by no means inimical to the German institution(s),
although there are grounds for differentiating between works councils on
the one hand and worker directors on the other. We will examine the
arguments for and against both institutions, paying especial attention to
the themes of property rights, contract theory, transaction costs, collec-
tive voice, and rent seeking. We will also discuss the possibility that oth-
erwise beneficial codetermination arrangements might be underprovided
by the market. This will lead in turn to the discussion of the potentially
pivotal role of institutional rules such as the “peace obligation” imposed
on works councils as well as union agreements that might hold the dis-
tributive aspects of works councils in check.
Since theory does not offer definitive guidance, much of the balance
of our discussion is given over to setting down carefully what is known
(and what is not known) of the consequences of works councils and board
membership for firm performance. Perforce our discussion will also on
occasion involve that other institution of the dual system, industry-wide
collective bargaining.