Do German Works Councils Counter or Foster the Implementation of Digital Technologies?

As works councils’ information, consultation, and co-determination rights affect the decision process of the management, works councils play a key role in the implementation of digital technologies in establishments. However, previous research focuses on the potential of digital technologies to substitute for labor and its impact on labor market outcomes of workers. This paper adds the role of industrial relations to the existing literature by analyzing the impact of works councils on the implementation of digital technologies. Theoretically, the role of works councils in the digital transformation is ambiguous. Using establishment data from the IAB Establishment Survey of 2016 combined with individual employee data from the Federal Employment Agency and occupational level data about the physical job exposure, empirical evidence indicates an ambivalent position of works councils towards digital technologies. The sole existence of works councils is associated with statistically significantly lower equipment levels with digital technologies. However, works councils seem to foster the equipment with digital technologies in those establishments, which employ a high share of workers who are conducting physically demanding job activities. Thus, this study highlights the importance of establishment-level workforce representation for the digital adoption process within Germany.