Using a large panel data set we investigate whether works councils act as sand or grease in the operation of German firms. Stochastic production frontier analysis indicates that establishments with and without a works council do not exhibit significant differences in efficiency.

"Against the background of theoretical considerations and available empirical studies, the expected effects of the amendment to the Law on Labour Relations at the Workplace (Betriebsverfassungsgesetz) are discussed. The various basic conditions are shown under which more positive or more...