Productivity and distribution effects of codetermination in an efficient bargaining model

Abstract

Codetermination can be regarded as an exogenously determined intervention which possibly affects efficiency of production and bargaining power of labor. Based on a model which covers efficient bargaining as well as employment bargaining a simple equation is derived which is suited to empirical testing. The empirical test is based on German data and includes years before and after the extension of German codetermination law in 1976. The estimates determine productivity of labor and relative bargaining power of capital and labor. It turns out that codetermination does not reduce productivity, but leads to an increase in workers’ bargaining power by about 7.4-7.9 percent.