Impact of codetermination at company level

A recently published analysis of the effectiveness and efficiency of the Works Constitution Act emphasises that the characteristics of the company in question, and of the environment in which it operates, determine the optimal form and extent of codetermination. The analysis shows that more companies have established tailor-made agreements than have set up works councils. This has been done in order to better adhere to local circumstances.

On 7 June 2007, the Cologne Institute for Economic Research (Institut der deutschen Wirtschaft Köln, IW Köln) published an analysis (in German, 7.75Mb PDF) of the effectiveness and the efficiency of the Works Constitution Act (Betriebsverfassungsgesetz). The study emphasises that both the form and the extent of participation in information processes and in decision-making depend on the characteristics of the establishment in question and of the environment in which it operates.

Prevalence of forms of codetermination

According to a representative survey (IW-Zukunftspanel) of almost 2,000 companies in manufacturing and affiliated service industries, in 2007 some 11.4% of the companies surveyed have an elected works council that has been established in compliance with the Works Constitution Act (see table). Although the IW-Zukunftspanel refers to companies rather than establishments, this figure is in line with data from the Establisment Panel provided by the Institute for Employment Research (Institut für Arbeitsmarkt- und Berufsforschung, IAB). According to the most recent figures from the IAB establishment panel of 2005, some 11% of establishments had an elected works council. In addition, both surveys reveal that the prevalence of works councils rises as company size increases.

Codetermination in German companies, by form of workers’ representation and company size, 2007 (%)
The table indicates that joint committees are more widespread than works councils in German companies in 2007.
Company size (No. of workers) Works councils1 Joint committees Other forms of workers’ representation
5–50 workers 2.8 13.7 8.6
51–100 workers 33.3 25.7 7.6
101–199 workers 60.0 22.2 17.8
200–500 workers 70.7 17.2 10.2
501 or more workers 71.9 22.9 24.0
Total 11.4 15.1 9.6

Notes: Survey of 1,911 companies with at least five employees in manufacturing and affiliated service industries in the spring of 2007; multiple responses possible

1Figures are exclusively provided for this EIRO article.

Source: IW-Zukunftspanel

The IW study also shows that 15.1% of the companies surveyed have voluntarily established a joint committee. In these committees, employee representatives and the employer share information and debate and jointly decide on important company-related policies and strategies. These joint committees are particularly common in companies with between 51 and 100 workers. Unlike works councils, the joint information, consultation and decision-making bodies are also relatively prevalent in the smallest companies employing up to 50 workers, with 13.7% of the companies surveyed having established such a body. In addition, almost 10% of the respondents report that employees’ interests are represented by other workers’ representatives. Both joint committees and other forms of workers’ representation can either substitute or complement works councils.

Conclusions and reform proposals

Involving the workforce in information processes and in decision-making can increase the efficiency of labour relations and thereby the competitiveness of the company if, in particular, the following two conditions hold:

  • the employees have invested in company-specific human capital;
  • the employees are so well informed that they are better placed to take certain decisions than managers.

As voluntary forms of codetermination are tailored to the needs of both the company and its workers, the effectiveness and efficiency of these alternative modes of codetermination can be presumed. This does not generally apply to works councils. The Works Constitution Act entitles the workforce to elect a works council, regardless of whether the aforementioned conditions hold true or not. Moreover, a works council can be established against the will of the majority of the staff, and it may replace an alternative form of interest representation that has been working both effectively and efficiently (DE0603019I). In addition, the Act stipulates the specific form that co-determination must take: it sets out the number of worker representatives on the works council, the areas in which it has a say, and the specific dispute resolution procedures. Therefore, the Works Constitution Act may raise the costs of cooperation between the employer and staff if codetermination becomes more bureaucratic.

In order to improve the efficiency of the Works Constitution Act, the IW Köln proposes several amendments:

  • that the establishment of a works council should require a minimum turnout in the works council election;
  • the implementation of an opening clause that allows workplaces to deviate from the specific regulations stipulated by law;
  • that employees should bear a share in the cost burden;
  • the acceleration of the dispute resolution mechanism;
  • an exemption from serving general political objectives.

Oliver Stettes, Institut der deutschen Wirtschaft Köln (IW Köln)

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