Works Councils and Establishment Productivity

Declining union density in many industrialized countries directs attention to alternative forms of labor relations and worker representation such as works councils. The German works council is one of the most powerful forms of worker representation in developed countries but little is known of its causal effect on productivity. A large linked employer-employee panel dataset is used to examine this issue. Comparing firms with and without a works council, the author finds that establishments with a works council are on average 6.4 percent more productive. The author presents evidence that this figure underestimates the true productivity effect of works councils.