Codetermination and power in the workplace.

Pubblichiamo di seguito l’Executive Summary di uno studio, che alleghiamo nella versione completa, condotto da Simon Jäger, Shakked Noy e Benjamin Schoefer per l’Economic Policy Institute.

Economic Policy Institute_Codetermination and power in the workplace

Executive summary

How does codetermination—entitling workers to participate in firm governance, either through membership on company boards or the formation of works councils—affect worker welfare and corporate decision-making?

In 2018, the Reward Work Act and the Accountable Capitalism Act, proposed by Democratic senators, included provisions that would require large companies to allocate 33–40% of the seats on their boards to worker-elected representatives. These proposals emulate the German model of “board-level codetermination,” which originated in the aftermath of World War II and has since spread to many European countries, including Austria, Denmark, Finland, Norway, and Sweden. In addition, the German model of “shop-floor codetermination” through elected works councils has received widespread attention in the past several years, in part due to the widely covered 2014 and 2019 unionization drives at Volkswagen’s Chattanooga, Tennessee, plant.

American corporate law has historically been hostile to such arrangements, which impinge on owners’ or managers’ exclusive discretion. And the academic literature has claimed that involving workers in firm governance impedes efficient decision-making, distorts incentives, and deters capital formation by allowing workers to capture the fruits of investment, ultimately stunting economic growth and leaving both employers and workers worse off. But alternative perspectives in the literature emphasize the potential benefits of codetermination for firms and workers through enhanced trust and information flows. And recent arguments stress that shared governance requirements can mitigate imbalances of power between employers and workers and thereby prevent exploitation.

This paper critically assesses these competing perspectives. We describe the background of existing codetermination laws and ask whether there are successful precedents for proposals to rectify workplace power imbalances through codetermination reforms. We then ask how contemporary codetermination institutions operate in practice. In which areas of decision-making does codetermination boost workers’ influence, and to what extent? How do worker representatives use their newfound authority? Are shared governance arrangements characterized by adversarial struggles between worker representatives and employers, or by cooperative relationships in which worker representatives and employers work together toward mutually agreeable goals? We draw on surveys, interviews, and case studies to answer these questions, and briefly survey the existing quantitative evidence on the economic impacts of codetermination.

We conclude that, historically, codetermination reforms have not been a key stand-alone vehicle for increasing worker power and have instead been intended to supplement core frameworks of union representation and centralized collective bargaining.

Contemporary codetermination arrangements mostly function as amicable venues for workers and employers to share information and perspectives and for workers to shape decisions about immediate working conditions. For example, board-level codetermination creates two-way knowledge flows, giving employers a more intimate understanding of company operations and the desires of workers, and giving workers financial and strategic information that may inform collective bargaining strategies. However, the presence of worker representatives on company boards does not substantially shift high-level decision-making; workers usually occupy a minority of seats and therefore lack the ability to outvote shareholders, and often worker representatives defer to shareholder representatives in recognition of the fact that workers benefit when the company performs well. Shop-floor codetermination gives workers some control over decisions about hours and amenities, but (apart from, e.g., German works councils) little control over wage-setting or layoff decisions. One notable exception is that worker representatives’ influence may grow during economic downturns, when qualitative evidence suggests the representatives sometimes play an important role in negotiating wage or hour cuts that prevent layoffs.

Probably reflecting the limited authority conveyed by most existing codetermination arrangements, the quantitative evidence suggests that both board-level and shop-floor codetermination have mostly zero or slight positive impacts on worker and firm outcomes.

On the worker side, minority board-level representation does not affect wages, but it may slightly increase job security and subjective job satisfaction; on the firm side, it has zero or small positive effects on productivity, capital intensity, and profitability. Relatively weak forms of shop-floor codetermination have similarly slight effects on both worker and firm outcomes, while stronger shop-floor codetermination arrangements (which allocate broader and more substantive powers to worker representatives) may slightly boost wages, reduce within-firm earnings inequalities, and raise job security (possibly at the expense of nonincumbent workers). Strong forms of shop-floor codetermination do not appear to worsen firm performance, and may even increase productivity, but there is still a dearth of credible quasi-experimental evidence on the effects of these arrangements, so we are hesitant to make confident pronouncements.

Our overall conclusion is that most existing codetermination arrangements are relatively weak and have, at most, incremental positive effects. This conclusion leaves us unable to decisively confirm or reject the important claim, implicit in American corporate law, that employers must retain exclusive discretion over firm governance or else economic performance will suffer. On the one hand, the existing evidence shows it is possible to involve workers in workplace decision-making in ways that, if anything, weakly improve firm performance while also plausibly benefiting workers. However, the representation arrangements for which we possess the most credible evidence do not involve very substantial restrictions on employer discretion. Causal evidence on the economic performance effects of shared governance arrangements that more substantively limit employer discretion—such as powerful German works councils or parity codetermination in German iron, coal, and steel sector firms—remains scarce. In sum, codetermination laws may perform valuable functions even if they do not substantially affect the balance of power in workplaces.

(Economic Policy Institute)

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