Many western economies have seen significant declines in the labor share of income, which has led to calls for worker representation on corporate boards to ensure the interests and views of workers. Recent polls suggest that a majority of American voters support this idea, and leading politicians in the US and the UK are advocating a system of shared governance. However, there is little scientific evidence on whether such shared governance systems have their intended effect.
To address this question, the authors constructed a unique matched panel dataset of all workers, firms, and corporate boards in Norway for the period 2004-2014, allowing the authors to measure the worker representation status of firms and to follow workers over time, even if workers switched firms. Importantly, these rich data combined with institutional features allowed the authors to use a variety of research designs, including
- comparison of different groups of workers before and after a switch between firms with different representation status,
- the ability to incorporate changes in worker compensation in response to idiosyncratic shocks to firm performance,
- an event study analyzing the effect of worker representation,
- and the effects of a law regulating the rights to worker representation as a discontinuous function of firm size.
The authors find that a worker is paid more and faces less earnings risk if she gets a job in a firm with worker representation on the corporate board. However, these gains in wages and declines in earnings risk are not caused by worker representation; rather, the wage premium and reduced earnings risk reflect that firms with worker representation are likely larger and unionized, and that larger and unionized firms tend to both pay a premium and better insure workers against fluctuations in firm performance.
Bottom line: Conditional on the firm’s size and unionization rate, worker representation has little, if any, effect.
This research offers important insight for policymakers. Taken together, these findings suggest that while workers may indeed benefit from employment in firms with worker representation, they would not benefit from legislation mandating worker representation on corporate boards.