The wage impact of being a works council representative in Germany: A case of strategic discrimination?

Abstract

Works councils provide an essential mechanism for worker participation in decision-making. While the literature has extensively explored their impact on worker and establishment outcomes, the negotiation process between works council representatives and their employer has remained largely unexplored. This article contributes to filling this gap by investigating wage discrimination towards works councilors in Germany. Fixed effects models leveraging panel data show that councilors receive a wage premium that positively correlates with the sectoral coverage of collective bargaining. In the manufacturing sector, where the tradition of bargaining is heavily entrenched, employers positively discriminate councilors. In contrast, in the service sector, where the culture of bargaining is weak, employers penalize works councilors. In both sectors, partisan and unionized works councilors are the most affected. The most likely hypothesis to explain these results is that employers strategically discriminate these councilors in order to bypass the traditional constraints of establishment-level participation. This article therefore questions the quality of industrial democracy in Germany.