Workers´s councils inflate labour costs

According to a new study by the Mannheim-based Centre for European Economic Research (ZEW) companies with a workers´council pay substantially higher wages than companies without it. A comparison between companies being similar as regards line of business, company size etc. shows that the wage difference is about 10%. Furthermore, in companies with workers´ council the difference between the several wage brackets is smaller. This, according to the study, is due to the fact that the 10% extra wage does not equally benefit all employees of a company.

In addition, the study identifies a mechanism which so far has not been taken into account in explaining the high rate of umemployment among unskilled people in Germany: those taking part in the study said that too high wages and a, by international standards, low wage graduation were one important cause of unemployment among unskilled workers. According to the ZEW, in Germany the high degree of employee participation via workers´s councils, which is unusual at the international level, facilitates these high wages and a strong wage compression.

The study is based on data from the representative 2001 LIAB data record which comprises the particularities of 1.3 million employees from more than 8.500 companies forming part of the IAB company panel. The »Works Councils and the Anatomy of Wages« study is available for free-of-charge download. GERMAN