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Labor in the Boardroom

Author

Listed:
  • Jäger, Simon

    (Massachusetts Institute of Technology)

  • Schoefer, Benjamin

    (University of California, Berkeley)

  • Heining, Jörg

    (Institute for Employment Research (IAB), Nuremberg)

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 control rights 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 whereby shared governance raises capital by permitting workers to bargain over investment or by institutionalizing communication and repeated interactions between labor and capital.

Suggested Citation

  • Jäger, Simon & Schoefer, Benjamin & Heining, Jörg, 2019. "Labor in the Boardroom," IZA Discussion Papers 12799, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp12799
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    More about this item

    Keywords

    industrial relations; corporate governance; codetermination; investment;
    All these keywords.

    JEL classification:

    • J0 - Labor and Demographic Economics - - General
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms

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