Working Paper: CEPR ID: DP14151
Authors: Simon Jäger; Benjamin Schoefer; Jörg Heining
Abstract: We estimate the effects of a mandate allocating a third of corporate board seats to workers (shared governance). We study a reform in Germany that abruptly abolished this mandate for certain firms incorporated after August 1994 but locked it in for the older cohorts. In sharp contrast to the canonical hold-up hypothesis – that increasing labor’s power reduces owners’ capital investment – we find that granting formal controlrights to workers raises capital formation. The capital stock, the capital-labor ratio, and the capital share all increase. Shared governance does not raise wage premia or rent sharing. It lowers outsourcing, while moderately shifting employment to skilled labor. Shared governance has no clear effect on profitability, leverage, or costs of debt. Overall, the evidence is consistent with richer models of industrial relations wherebyshared governance raises capital by permitting workers to bargain over investment or by institutionalizing communication and repeated interactions between labor and capital.
Keywords: industrial relations; corporate governance; codetermination; investments
JEL Codes: J0; J53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| granting formal control rights to workers through shared governance (J54) | raises capital formation (E22) |
| shared governance (G38) | increases in capital stock, capital-labor ratios, and capital shares (E22) |
| shared governance (G38) | lowers outsourcing (L24) |
| shared governance (G38) | moderately shifts employment toward skilled labor (J24) |
| shared governance (G38) | significant increase in labor productivity (O49) |
| shared governance facilitates capital formation (G38) | allows workers to bargain over investments (J52) |
| shared governance facilitates capital formation (G38) | fosters communication between labor and capital (J59) |