IW study examines cost of works councils

* Not asked in the 1997/8 study.

** Average value of costs per employee. In the survey, firms were asked, in the individual questions, to provide costs per worker. The average of these values is provided in the table. To calculate the average costs, the individual costs for each worker have been added together, and this total is then divided by the number of firms in the survey. Only those firms that answered the particular question under consideration were included in the calculation. Calculating the average in this way means that all firms - regardless of their size - are treated equally. This means that the average is unweighted.

Source: IW 2004.

Further costs in detail

The development of the costs related to works meetings (see the table above) differs from the general trend of rising costs of firm-level co-determination per employee. The fact that works meetings, on the whole, take place during normal working hours means that workers must be released from their usual duties and that, for example in department stores, some sales are foregone. This leads to high costs for companies. Works meetings should take place once a quarter. The works council can, when this 'appears to be necessary for special reasons', hold a further meeting once every six months. Even though the number of works meetings is, nowadays, lower than it once was, costs are still incurred by firms because they have to give workers time off to attend the meetings and because they lose sales/production. These costs have fallen from an average of EUR 250 per worker per year in 1997/8 to just under EUR 150 in 2003/4. Whilst, in 1997/8, there were usually four meetings a year, as provided for in the law, nowadays there are, as a rule, just two such meetings.

The costs of other works council activities have, in contrast, risen sharply, according to the research. This is particularly true for the work carried out by the establishment-level arbitration committee. The law clearly states that 'the costs of the establishment-level arbitration committee shall be borne by the employer'. The central paragraphs on firm-level co-determination end: 'If an agreement cannot be reached between employer and works council, the establishment-level arbitration committee shall decide. The decision of the establishment-level arbitration committee substitutes a failure of agreement between employer and works council.' If the costs of the establishment-level arbitration committee are examined, it is possible to say that the committee is called upon more frequently now than it was in the past: in 1997/8, the annual costs for the work of the committee averaged EUR 22 per worker; now, on average, firms must pay nearly three times as much to cover the costs of the committee’s work.

If there are several works councils within one company, a company works council must be established as a legal obligation. In a holding company, a group works council may be established by resolutions of the individual company works councils. This means that a group works council is not a legal requirement. The costs of the company works councils currently amount to over EUR 25 per worker per year, while group works councils lead to costs for companies of just under EUR 8 per worker per year. The considerable increase in annual costs associated with company works councils, of about EUR 18 per worker, between 1997/8 and 2003/4 is, according, to the IW study, the outcome of the controversial amendments to the Works Constitution Act passed in 2001 (DE0107234F). As a result, in 2002, many more works councils were elected. This, in turn, meant that there are more works councillors represented in company works councils. For instance, every local works council that has up to three members can send one of its members to the company works council. Works councils with more than three members can send two of their members.

At the same time, the amendments to the Act have lead to an increase in the costs associated with works council elections, the study finds. This is because the Act now, for example, provides for the election of seven work councillors instead of the earlier five in firms with 101 to 150 employees. Moreover, employers are now required to make provision for a full-time works councillor in establishments with 200 or more employees; the previous threshold was 300 or more employees. The thresholds for additional full-time councillors have also been lowered (DE0305202F). Not surprisingly, the annual average costs associated with the election of works councillors have risen from nearly EUR 14 to about EUR 19 per worker.

In all companies with more than, as a rule, 100 permanent employees, the formation of an economic committee is a legal requirement according to the Works Constitution Act. Preparations for these committees' meetings must be carried out particularly diligently as the matters and figures discussed at such meetings are highly important for the company. The costs associated with economic committees are, therefore, not inconsiderable; they now amount to more than EUR 12 per employee per year. The largest components of these costs are the participation of senior staff (EUR 6.60) and of the employer or its representative (about EUR 5).

A representative body for young workers and trainees is elected in establishments with a works council and at least five young workers. These bodies are associated with average costs for the firm of EUR 7.85 per employee per year. Here, too, as with the activities of the works council, the release of workers from their usual duties leads to the greatest part of this cost.

Commentary

The IW study considers only those costs that are measurable. It is difficult to put a figure on the costs associated not only with delays in company decisions that are caused by co-determination, but also with those compromises that are reached between management and works council when there is a disagreement between the two.

On the other hand, a good relationship with the works council can also be beneficial for management. For instance, the IW study found that the total costs are not an unchangeable constant. In those establishments in which management did not think about the 'if', but about the 'how' of cooperative work, and in which works councillors were recognised as partners in shaping the working environment, the costs of works council activities per worker were considerably lower. For instance, if an attitude of partnership is adopted by both managers and works councillors, then there are far fewer occasions on which the establishment-level arbitration committee must become involved. There are also far fewer legal conflicts and less use of expensive experts whose bills are paid by the company involved. (Lothar Funk, Cologne Institute for Business Research, IW)