Employee representation legislation from the European Union (EU) helped to secure flexible working-time arrangements, especially in companies with more women workers. That is the central finding of research by Gabriel Burdín and Virginie Pérotin, to be presented at the Royal Economic Society''s annual conference at the University of Bristol in April 2017.
When the EU Directive granting information and consultation rights to employees in business with more than 50 people was implemented in Cyprus, Ireland, Poland and the UK, it required major changes in national legislation. Using data from the European Company Survey 2004-13, the study compares eligible and non-eligible firms. It finds that the legislation led to more employee representation and more flexible working-time arrangements. In addition, employee representation affected flexible working more if no local wage bargaining took place, or if there was a high proportion of women workers.
The authors comment: ''Employee representation may facilitate the introduction of flexible working-time arrangements by improving communication and information flows between the parties and protecting workers against the potential opportunistic manipulation of working time schedules.''
They add: ''The ability of organisations to adapt rapidly to a changing environment is a critical success factor in competitive markets. Quite paradoxically, the relaxation of shareholders'' property rights and the limits imposed on managerial discretion as a result of the operation of employee representation seem necessary to achieve certain valuable forms of organisational flexibility.''
Employee voice mechanisms – including labour unions, works councils and joint consultative committees – affect the distribution of decision rights and information between managers and workers at the workplace level. The presence of employee representation structures may oblige firms to disclose financial information and may impose specific procedures on how to implement certain decisions and major organisational changes.
It may be thought that employee representation erodes organisational flexibility by imposing time-consuming consultation and decision-making processes, thus limiting the ability of firms to respond to market signals quickly. We study whether or not this presumption is empirically grounded by focusing on the effect of employee representation on an important operational dimension of organisational flexibility: working-time flexibility.
Flexible working-time arrangements can provide a cost-effective adaptation of employment to demand changes, by reducing overtime bonuses and the costs of recruiting and training temporary workers. From the employee''s perspective, they have the potential to promote a better work-life balance, by allowing employees to vary their working times according to personal needs.
Identifying the effect of employee representation is methodologically troublesome. For example, management quality (usually unobserved) may be positively correlated with both flexible working schemes and employee representation. Good managers may be prone to implementing working-time flexibility and opening up regular information and consultation channels with the workforce. Ideally, one would require exogenous variations in the presence of employee representation at the workplace level.
To overcome this problem, we exploit the quasi-experimental variation introduced by the implementation of a European Union (EU) Directive granting employees information and consultation rights beyond a certain firm size. The Directive 2002/14/EC on the Information and Consultation of Employees provides employees with minimum statutory rights to be informed and consulted by their employers on a range of key business, employment and work organisation and restructuring issues.
We focus on four countries (Cyprus, Ireland, Poland and the UK) in which the implementation (''transposition'') of the Directive implied major changes in national legislation. The size-contingent nature of the Directive, which applies to establishments employing 50 employees or more, creates quasi-experimental conditions. This setting allows us to use a difference-in-difference approach to compare the responses of eligible and non-eligible establishments.
Analysing repeated-cross sectional establishment-level data from the European Company Survey for the period 2004-13, the study finds that:
• The Directive had a positive and significant effect on both the presence of employee representation and the use of flexible working-time arrangements in eligible private-sector establishments.
• The proportion of establishments with employee representation among those establishments affected by the Directive increases by 7 percentage points compared with the control group over the reform period.
• The use of working-time accounts in the establishments affected by the Directive (the treatment establishments) increases by 5 percentage points compared with control establishments in the same period.
• The effect of employee representation on flexible working-time schemes is driven by establishments where no local wage bargaining takes place and those with a high proportion of female workers.
These results are consistent with the idea that employee voice may foster flexibility along margins of adjustment (hours) other than employment in second-best scenarios in which incomplete contracting problems are pervasive. Employee representation may facilitate the introduction of flexible working-time arrangements by improving communication and information flows between the parties and protecting workers against the potential opportunistic manipulation of working time schedules.
The ability of organisations to adapt rapidly to a changing environment is a critical success factor in competitive markets. Quite paradoxically, the relaxation of shareholders'' property rights and the limits imposed on managerial discretion as a result of the operation of employee representation seem necessary to achieve certain valuable forms of organisational flexibility.
''Employee representation and flexible working time'' by Gabriel Burdín and Virginie Pérotin Gabriel Burdín is Marie Curie Research Fellow at Leeds University Business School and IZA Research Fellow. Virginie Pérotin is Professor of Economics at Leeds University Business School.