Efficiency and distributional effects of German labor market institutions

Abstract

This thesis expands knowledge on the efficiency and distributional effects of German labor market institutions. Chapter 2 considers the relevance of employee representation institutions for innovative output and disentangles the relationship between statutory and voluntary representation in this regard. This chapter finds positive effects of voluntary employee representation for incremental and radical product and for process innovation. Chapter 3 combines the concept of the social exchange theory within employee-employer related research. Using a dynamic difference-in-differences framework combined with matching algorithms, results from this chapter add to the previous literature and provide evidence that voluntary representation institutions raise labor productivity by 8 to 12 percent. In addition to employee representation, this thesis also broadens the perspective and investigates consequences of the Hartz reforms, i.e. changes in labor market institutions induced by Hartz III and Hartz IV. In this regard, empirical findings in Chapter 4 provide evidence that establishments that use the Federal Employment Agency as their recruitment channel, realize an increase in employment growth compared to establishments, which do not use the placement services. Finally, the results of chapter 5 indicate that labor market institutions also generate distributional effects. The Hartz IV reform exogenously reduces alternative wages and thus provides the opportunity to investigate this exogenous reduction in the outside option in wage bargaining in fine detail. First, structural break algorithms identify the Hartz IV policy reform as a significant change point in the labor share. Second, a synthetic control approach and a variant of a difference-in-differences framework are applied using unemployment rate variation among German counties in the year 2002 as a measure of treatment intensity. Results of this chapter contribute to the debate on income distribution and indicate that the Hartz IV reform results in a persistent reduction of the labor share by about two percentage points. In summary, the results of this thesis show that manager-initiated voluntary forms of representation are beneficial for establishments in terms of innovative output and labor productivity. Moreover, institutional changes induced by the Hartz III reform benefit establishments in terms of employment growth. Regarding distributional effects, employees seem to bear the cost in terms of lower labor shares during this period in Germany. To summarize and considering the empirical findings of this thesis, future designs and reforms of labor market institutions should therefore carefully balance efficiency gains with equity considerations.