The Causes and Consequences of Adopting a Works Council

This paper reports on the results of a study on the determinants of the introduction of a works council and its consequences.We consider the effects of expectations concerning the economic conditions of a firm on the probability of adopting a works council. This is done, on the one hand, by use of employees’ expectations on employment security and, on the other hand, by including forecasts of the management concerning employment growth and business conditions. Secondly, the effects of the introduction of works councils on wages and overtime working are investigated. Works councils are introduced when employees are concerned about job security. After the introduction of a works council the concerns about job security are less pronounced.