The Impact of German Works Councils on Profitability and Innovation: New Evidence from Micro Data / Der Einfluß von Betriebsräten auf Profitabilität und Produktinnovationen: Neue Untersuchungsergebnisse auf der Basis von Betriebsdaten

Abstract

Summary This paper presents new evidence of works council impact on two dimensions of firm performance, namely, relative profitability as assessed by top management, and innovative activity as measured by new product development. The extant German literature is reviewed en passant, and some care is also taken to differentiate between the theoretical arguments that have been used to support greater worker involvement in their companies. Consistent with previous research findings based on different data sets, no support is adduced for the proposition that works councils favorably influence the outcome indicators. That being said, it is argued that further progress in the economic analysis of the works council awaits the availability of large-scale panel data, in the absence of which considerable ambiguity will perforce continue to attach all estimates of works council impact, including those reported here.