Various studies show that works councils improve working conditions in companies, secure wages, and protect employees from job losses. However, the new analysis shows that it is not only important whether there is a works council, but also how it is composed.
Blue-collar workers are represented in works councils in proportion to their share of the workforce. “This is remarkable, as blue-collar workers are often underrepresented in management positions and supervisory boards,” says Thomas Dohmen. The researchers examined companies in which the proportion of blue-collar workers on the works council increased after elections or replacements due to retirement. The result: job security increases while wages remain stable.
Stable wages despite higher job security
Using a data set from the Institute for Employment Research (IAB), the economists identified employees in German companies who had served as professional representatives on works councils during their careers. In addition, they evaluated data from the German Socio-Economic Panel (SOEP) to compare the preferences and personality traits of around 1,200 works council members with those of other employees. The result: Blue-collar workers place more value on employment protection and are more likely to fear losing their jobs. They were more likely to have been unemployed at some point and to expect lower wages when changing jobs. This suggests that works councils also play an important democratic role in alleviating tensions between different groups. “It is important for social cohesion in our society that the interests of the workforce are adequately represented,” says Dohmen.
The researchers analyzed companies in which the proportion of blue-collar workers on the works council rose by more than 33 percentage points after new elections. In companies with a higher proportion of blue-collar workers on the works council, employee turnover was on average around seven percent lower in the five years following the election. Fewer employees left the companies involuntarily and became unemployed. At the same time, wages remained stable and even rose slightly at the lowest end of the scale.
Works council is an attractive career path for workers
One possible explanation for the results could be the different preferences of the two groups: since job security is on average more important to blue-collar workers than to white-collar workers, they may be more committed to it in the works council. The mandate also pays off financially for blue-collar workers: after four years on the works council, they earned an average of seven percent more than colleagues with a similar career path. For white-collar workers, it was only two percent. This could lead to higher motivation and greater commitment to the works council.
Background: Works councils in Germany
Works councils have existed in Germany since the Weimar Republic and have been codified in the Works Constitution (Betriebsverfassungsgesetz) in 1952. In companies with more than five employees, workers have the right to establish a works council. The members are usually elected by the workforce every four years. The size, rights, and responsibilities depend on the size of the company. In small businesses, employees take on the role alongside their regular job, but in companies with 200 or more employees, at least one person is released from their regular duties and continues to receive their regular salary. According to the Federal Statistical Office of Germany, by 2024 only one in three employees in the private sector was represented by a works council.