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Wage Determination in the Shadow of the Law: The Case of Works Councilors in Germany

Markus Pannenberg

Wage Determination in the Shadow of the Law: The Case of Works Councilors in Germany

Abstract

The German law on co-determination at the plant level (Betriebsverfassungsgesetz) stipulates that works councilors are neither to be financially rewarded nor penalized for their activities. However, lavish payments to works councilors in some large firms have sparked a debate about the need to reform the law. This paper offers an empirical basis for the discussion and provides representative evidence on wage payments to works councilors for the period 2001 to 2015. We find wage premia of 2% to 6% in OLS-specifications, which are more pronounced for long-term works councilors. Because we observe no wage premia in linear fixed-effects panel data specifications, the OLS-results are likely to capture the effects of selection into works councillorship. We obtain no evidence for a delayed compensation, or a special treatment of works councilors released from work. Hence, our results indicate that payments to works councilors are broadly in line with legal regulations.