Organisational justice, employee representation, and firm performance

Empirical studies find that firms with employee representation have a higher productivity than firms without employee representation. The exact mechanisms for this consistent finding remain unclear, however. A frequent theoretical argument postulates that employee representation provides a safeguarding mechanism which improves justice perceptions of employees that in turn improves cooperation and performance. Using a German longitudinal linked employer-employee dataset, we show that employees in firms with a collective bargaining agreement have higher individual and shared justice perceptions. These higher justice perceptions contribute to the productivity premium of firms with collective agreement. In contrast, justice perceptions are not higher in firms with than in firms without a works council.