Labor Representation in Governance as an Insurance Mechanism

Labor Representation in Governance as an Insurance Mechanism

E. Han Kim, Ernst Maug, Christoph Schneider

Series number :

Serial Number: 
411/2014

Date posted :

September 01 2016

Last revised :

May 22 2018
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Keywords

  • Risk-sharing • 
  • Employment insurance • 
  • Worker representation on corporate boards

We hypothesize that labor participation in governance helps improve risk sharing between employees and employers. It provides an ex-post mechanism to enforce implicit insurance contracts protecting employees against adverse shocks.

Results based on German establishment-level data show that skilled employees of firms with 50% labor representation on boards are protected against layoffs during adverse industry shocks. They pay an insurance premium of 3.3% in the form of lower wages. Unskilled blue-collar workers are unprotected against shocks. Our evidence suggests that workers capture all the gains from improved risk sharing, whereas shareholders are no better or worse off than without codetermination.

Authors

Real name: 
E. Han Kim
Prof.
Real name:
Christoph Schneider
Tilburg University