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.

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Authors

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