Industrial Relations and Collective Bargaining: How Decentralization Affected German Firms Productivity

This study investigates the impact of industrial relations decentralization on firm productivity. To that end, we analyze 1284 German firms during the period 1999-2014, taking information from the IAB Establishment Panel, and implement several empirical strategies to deal with the endogeneity issue emerging from the related literature. Therefore, starting from a theoretical framework, we perform OLS regressions with controls, fixed effects panel models, an instrumental variable approach and a difference in differences strategy. The results show that plant level collective bargaining per se does not improve firm performances relative to sectoral agreements, whereas the presence of a works council is found to be productivity enhancing, with an increase in total factor productivity of 0.016% to 2.7%. Moreover, the works council is reported by panel models to rise labour productivity by 4%.