The Impact of Works Council Membership on Wages in Germany: A Case of Strategic Discrimination?

This paper provides new insight into the quality of cooperation between employers and workers in Germany by estimating the impact of works council membership on wages between 2001 and 2015. It falls within a stream of research on collective organisations that has shifted focus away from the perspective of covered firms and their average worker to concentrate on the actors leading the negotiations. To my knowledge, this is the first economic analysis of a non-unionised form of representation to adopt this orientation. The main model of identification is an OLS with time and individual fixed effects conducted on a subsample of the German Socio-Economic Panel. I find that for individuals switching status without changing firm, being a works councilor increases the hourly gross wage by 4.5% in the manufacturing sector, while a penalty of 4% is evidenced in the service sector. I present several types of evidence showing that the impact is causal. Finally, I show that politically active representatives receive most of the (negative or positive) premium. Turning back to the context, I explain why this is likely to reflect a strategic behaviour of employers and a decline in the quality of cooperation in the country.