Higher Wages at Companies With Works Councils

Companies with works councils pay significantly higher wages than those without it. A comparison of companies with similar features regarding the economic sector, company size, etc. suggests that enterprises with works councils pay on average about 10 per cent more than those without it.

In addition, the discrepancy between the wage groups in companies with works councils is comparably low, which means they have a smaller wage differentiation. This is particularly due to the fact that not all employees benefit from the 10 per cent wage markup to the same extent. The low paid profit more than the well paid. These are the findings of a current survey conducted by the Centre for European Economic Research (ZEW) in Mannheim. The study is based on data concerning the year 2001 from the representative LIAB data set, which contains the characteristics of all 1.3 million employees working at one of more than 8,500 companies included in the IAB establishment panel.

The substantial wage markup for employees working at companies with works councils raises the question whether employees of these enterprises gain a larger proportion of the profits than those working in companies without works councils. Comparing the length of employment, the ZEW survey indicates that this is hardly the case. A large part of the wage markup has resulted from a higher labour productivity.

However, the study also reveals a further way of explaining the high unemployment among low-skilled workers in Germany, which has not been taken into consideration until now. Exceedingly high wages and the low wage differentiation by international comparison are regarded as the main reasons for unemployment among low-skilled workers. The internationally unique possibility of participating in company policy making via works councils favours these high wages and wage compression.

The ZEW study further suggests that works councils also reduce the wage gap between men and women. Women with a small income benefit the most from the existence of a works council at a company.

Contact

Prof. Dr. Thomas Zwick, Phone: +49(0)621/1235-283, E-mail: zwick@zew.de