Labor in the Boardroom

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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 22.10.2019, 12:15 - 13:30

   

Presentation by 

Benjamin Schoefer (University of California, Berkeley)
   

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 slightly older cohorts. In sharp contrast to the canonical hold-up hypothesis - by which increasing labor's power reduces owners' capital investment - we find that granting workers formal control rights 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 and 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.

   
   
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