Think workers don’t have enough of a say in U.S. companies? Look to Germany, Boston College professor Kent Greenfield argues in the latest issue of Democracy.
Through a process called “codetermination,” large German companies are required to elect half their board of directors by a vote of their employees, rather than of their shareholders. And it’s “now the economic powerhouse of Europe,” Greenfield contends.
How much the latter is true is pretty arguable. Germany does not have the kind of widespread unemployment that plagues the rest of the continent, but it also has much more severe wage stagnation. So it’s hardly a paradise. But Greenfield’s piece raises a good question: What have the results of codetermination been for Germany, both for growth and for workers’ share of that growth?
The best research on this in English-language publications has come from John Addison of the University of South Carolina. He, along with Claus Schnabel and Joachim Wagner, recently produced a literature review summarizing all 17 studies that have been conducted on codetermination to date. There have been three stages of research, each using better data than the last, but the most recent is almost uniformly positive toward the councils.
While there’s little evidence that they increase sales or overall employment, they do seem to have a positive effect on productivity, according to the two most recent studies on that question. One, from Bernd Frick, found that Western German firms saw a huge 25 percent spike in productivity, while Eastern German firms transitioning out of Communism saw an even bigger 30 percent jump. Previous research almost uniformly found that the councils increase wages.
That said, some suggested that the effects on productivity are blunted for small firms, or those without unions. Addison and his coauthors do urge skepticism of the more recent productivity numbers, noting that getting a good sample for comparisons is tough. And obviously, the United States and Germany are very different countries and a policy that worked with one might not pan out in another.
But similar policies in the United States have borne fruit. Studies of Employee Stock Ownership Plans (ESOPs), in which employees are encouraged to take an ownership stake in their own firms, find that they increase overall compensation, job satisfaction, productivity and profitability. “Evidence suggests that combining employee ownership with increased employee participation may generate astounding returns on investment,” concludes Penn’s Steven Freeman.
Giving workers more control over their firms seems to help both them and the companies. Maybe U.S. companies could take the hint.
Source: Ezra Klein