Worker participation and firm performance : evidence from Germany and Britain

This paper examines the Freeman-Lazear works council/worker involvement model against the empirical backdrop of two different industrial relations systems: the British voluntaristic system, and the German system of mandatory works councils. We find that in nonunion British firms worker involvement increases economic performance, but in the union firms there are negative effects. The implication is that local distributive conflict can cause the wrong level of worker involvement to be chosen, as predicted by the model. ln Germany, where centralized collective bargaining reduces local distributive conflict, we find that a mandate can be advantageous, again as predicted by the model. However, the straitjacket of a mandate is shown to disadvantage small German firms