Worker participation and firm performance: Evidence from Germany and Britain

The Freeman-Lazear works council/worker involvement model is assessed over two distinct industrial relations regimes. In non-union British establishme nts our measures of employee involvement are associated with improved econo mic performance, whereas for unionized plants negative results are detected , The suggestion is that local distributive bargaining can cause the wrong level of worker involvement to be chosen. Also consistent with the model is our finding that mandatory works councils do nor impair, and may even impr ove, the performance of larger German establishments. Yet smaller plants wi th works councils under-perform, illustrating the problem of tailoring mand ates to fit heterogeneous populations.