Labor in the Boardroom

NBER Working Paper No. 26519

Issued in November 2019, Revised in August 2020

NBER Program(s):Corporate Finance, Economic Fluctuations and Growth, Law and Economics, Labor Studies, , Political Economy, Productivity, Innovation, and Entrepreneurship



We estimate the wage effects of shared governance, or codetermination, in the form of a mandate of one third of corporate board seats going to worker representatives. We study a reformin Germany that abruptly abolished this mandate for stock corporations incorporated after August 1994, while it locked the mandate for the slightly older cohorts. Our research design compares firm cohorts incorporated before the reform and after; in a robustness check we additionally draw on the analogous difference in unaffected firm types (LLCs). We find no effects of board-level codetermination on wages and the wage structure, even in firms with particularly flexible wages. The degree of rent sharing and the labor share are also unaffected. We reject that disinvestment could have offset wage effects through the canonical hold-up channel, as shared governance, if anything, increases capital formation.

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Acknowledgments

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Document Object Identifier (DOI): 10.3386/w26519