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Work councils in Germany have a long history, with their origins in the early 1920s in the post World War I Weimar Republic, established by the Betriebsrätegesetz or Work Council Act. Initially, Unions were very skeptical of Work Councils, seeing them as a way for management to negotiate with employees without employing collective bargaining, but eventually they developed clearly defined responsibilities with Work Councils not allowed to organize strikes or enforce a wage increase. In recent years with a decline in union membership, Work Councils have come to be seen as a way for unions to recruit members, specifically by having Work Councils campaign for people to join them.

In Germany, they serve two functions. The first is called co-determination and is where work councils electing members of the board of directors of German companies. The second is called participation, and means that work councils must be consulted about specific issues and have the right to make proposals to management. One of the most impressive achievements of the councils is producing incredibly harmonious relations between management and workers, leading to a situation with strong unions and incredibly low strike rate. This also allows for a lot of coordination between the firm and the workers, resulting in, for example, the ability of many German firms to dramatically scale back the hours of each worker without large scale layoffs during the 2008 financial crisis, and then slowly scaling back up as the recovery took effect. This was all assisted by the Kurzarbeit, a fund that helps workers who have had their hours reduced.

Work Councils in Germany have been correlated with a number of positive effects. They promote higher wages, even more than collective bargaining (although situations with both will promote wages the highest), they make firms more productive (although the degree to which they increase productivity can be hard to measure). and they don’t inhibit investment or innovation. Work councils have also been shown to help women, East German, and foreign workers at a higher rate compared to West German Men. However, they are correlated lower profitability, likely since they tend to bring higher wages, and there may not be as much benefit in smaller companies as there is in larger ones.