Sickness Absence and Works Councils: Evidence from German Individual and Linked Employer–Employee Data

• Date: 01 April 2018
• Published date: 01 April 2018
• DOI: http://doi.org/10.1111/irel.12204

Sickness Absence and Works Councils: Evidence

from German Individual and Linked Employer–

Employee Data*

DANIEL ARNOLD, TOBIAS BRÄNDLE, and

LASZLO GOERKE

Using both household and linked employer–employee data for Germany, we

assess the effects of nonunion representation in the form of works councils on (1)

individual sickness absence rates and (2) a subjective measure of personnel prob-

lems due to sickness absence as perceived by a firm’s management. We find that

the existence of a works council is positively correlated with the incidence and

the annual duration of absence. Further, personnel problems due to absence are

more likely to occur in plants with a works council.

Introduction

In Germany, nonunion workforce representation by works councils is wide-

spread. Such councils have extensive information, consultation, and codetermi-

nation rights. While their effects on wages, productivity, employment, and

profitability have been studied intensively, this is not true with regard to sick-

ness-related absence. This is surprising because absence in Germany is relatively

high in international comparison (OECD 2007, p. 95) and purported to cause

substantial output losses (Badura et al. 2011). Furthermore, works councils have

JEL: J53, I18, M54.

*The authors’affiliations are, respectively, ZEW Mannheim, Mannheim, Germany. E-mail: D.t.arnold@

gmx.de; IAW at University of T€

ubingen, T€

ubingen, Germany. E-mail: tobias.braendle@iaw.edu; and

IAAEU at Trier University, IZA Bonn, and CESifo M€

unchen, Trier, Germany. E-mail: goerke@iaaeu.de.

The authors are grateful for helpful comments by an anonymous referee and the editor; by Martin Behrens,

Thomas Beissinger, Adrian Chadi, Christian Grund, Boris Hirsch, Thomas Leoni, Jens Mohrenweiser, Stef-

fen Mueller, Markus Pannenberg, Christian Pfeifer, Nadine Riedel, Claus Schnabel, and Nicolas Ziebarth; as

well as participants of the “THE”Workshop in Hohenheim, the 16th Colloquium on Personnel Economics

in T€

ubingen, the annual conferences of the Verein f€

ur Socialpolitik (VfS) in D€

usseldorf, the German Aca-

demic Association for Business Research (VHB) in Leipzig, the European Society for Population Economics

(ESPE) in 

Aarhus, the European Association of Labour Economists (EALE) in Torino, and the World Con-

gress of the International Economic Association (IEA), Dead Sea (Jordan). This study uses the Cross-sec-

tional model of the Linked Employer-Employee Data from the IAB (LIAB) (Version QM2 9310, years

2000–2010). The authors thank the employees of the Research Data Centre (FDZ) of the German Federal

Employment Agency (BA) at the Institute for Employment Research (IAB) for remote data access.

INDUSTRIAL RELATIONS, Vol. 57, No. 2 (April 2018). ©2018 Regents of the University of California

Published by Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington

Road, Oxford, OX4 2DQ, UK.

260

considerable impact on the determinants of sickness-related absence and on the

means available to firms to respond to such employee behavior. The direction of

the impact is, however, ambiguous. On the one hand, works councils may pre-

vent firms from monitoring absence behavior and from imposing sanctions for

illness-related absence. Moreover, councils may provide information about enti-

tlements with regard to sickness-related absence. Accordingly, they can be

argued to increase absence. On the other hand, works councils can act as the

employees’voice and help to improve working conditions and productivity. In

this latter case, they presumably reduce absence.

In this paper, we provide the first systematic analysis of the relationship

between works councils and sickness absence and its consequences for firms.

We, first, use the German Socio-Economic Panel (SOEP) to investigate the

effects of works councils on individual absence behavior. The SOEP contains

information on the incidence and the duration of sickness absence on an annual

basis, as well as, for some years, on the existence of a works council. The esti-

mates from pooled cross-sectional models suggest that an employee working in a

plant with a works council is about 3 percentage points more likely to be absent

at least 1 day in a given calendar year than an otherwise similar employee who is

not represented by a council. The corresponding difference in the annual duration

of absence amounts to more than 1 day. These effects are quantitatively sizeable,

given an average unweighted incidence (duration) of about 58 percent (9 days).

Second, we employ linked employer–employee data (LIAB). We exploit a

unique variable that is derived from questions directed at plant managers or high-

ranking personnel staff, inquiring whether they expect personnel problems, for

example, due to high absence rates. We show that the existence of a works coun-

cil is associated with an increase in the likelihood of such problems by about 3

percentage points. This is also an economically sizeable impact, given an average

unweighted probability of 12 percent.

While works councils looked at in this paper are specific to Germany, simi-

lar institutions exist, for example, in Austria and the Netherlands. Furthermore,

broadly comparable mechanisms of employee representation at the plant level

can be found in such diverse countries as Canada or Korea (cf. Jirjahn,

Mohrenweiser, and Backes-Gellner 2011). Moreover, although works councils

in Germany and firm-level unions are distinct entities, inter alia, because the

former are not allowed to bargain over wages in the presence of a collective

bargaining agreement, they also share similarities, for example, with respect to

sickness-related absence. As it is the case for works councils, firm-specific

trade unions can provide employees with information about legal entitlement,

or protection against employer sanctions, and affect working conditions. In

consequence, our findings can be applicable to a wider range of firm-level rep-

resentation bodies and informative for other countries than Germany.

Sickness Absence and Works Councils / 261

The remainder of the paper develops as follows. The next section outlines

the institutional set-up and its consequences for absence behavior, followed by

a section providing detailed descriptions of the data and the econometric

methodology. We then present and discuss our main results, followed by a

section reporting various robustness checks, subsample-specific effects, and

results from a difference-in-differences approach. Finally, we summarize our

findings.

Related Contributions and Institutional Set-Up

In this section, we initially describe the few extant contributions that provide

information on the relationship between sickness absence and the presence of

a works council in Germany. Subsequently, we delineate the legal framework.

However, such a legal perspective may not be sufficient, because works coun-

cils have been shown to affect economic outcomes, such as wages, which the

relevant law (the Works Constitution Act [WCA]) explicitly removes from

their realm (see, e.g., Addison, Teixeira, and Zwick 2010). Consequently, we

take a wider perspective in the last part of this section.

Related literature. Despite the broad relevance of our topic, there is, to the

best of our knowledge, no general investigation of the relationship between

works councils and sickness absence for Germany. Findings available thus far

either relate to specific groups of employees or constitute by-products of analy-

ses focusing on other issues. Pfeifer (2015), for example, looked at appren-

tices, a subgroup of mostly very young employees who have fixed-term

contracts of approximately 3 years duration. During this period they receive a

dual education—at vocational schools and in the firm where they are

employed—which conveys knowledge related to a particular occupation. Pfei-

fer (2015) combined firm data from the private sector for 2007 from the Fed-

eral Institute for Vocational Education and Training with administrative

employee data; the employer reports the absence information. He showed that

the number of absence days by apprentices is lower if there is a works council.

While this finding is suggestive of works councils acting as the employees’

voice and helping to improve working conditions, it cannot easily be general-

ized. First, apprentices are subject to different legal regulations than regular

employees. Second, works councils play a specific role in the German appren-

ticeship system. Third, the analysis is restricted to a single year.

In contrast to the investigation by Pfeifer (2015), whose study indicates a

negative correlation, some analyses focusing on related issues suggest a posi-

tive relationship between works councils and sickness absence. Ziebarth and

262 / DANIEL ARNOLD,TOBIAS BRÄNDLE,AND LASZLO GOERKE