Codetermination, the right for workers to participate in management decisions, is a heritage from the time of the Weimar Republic, which unions strove to expand since the founding of the Federal Republic. In 1920, elected workers' representatives were allowed to form workers' councils in every business. The allied forces resorted to this Workers' Council Act after the collapse of National Socialism. According to the Control Council Act No. 22 from 1946, worker's councils were obliged to coordinate their functions with officially recognized unions. During the past decades this peculiarity of the German system has substantially shaped the countries' economic and social face.

Codetermination applies both to the plant level and to the industry level. Depending on business size and type, there are various forms of codetermination. Modern codetermination was first established in the coal and steel industries in 1951 with the Iron and Steel Codetermination Act of 1951 (Montan-Mitbestimmungsgesetz). This law was implemented when German government was facing threats of severe strikes by the two unions in the iron and steel industries. Concessions were made to the unions in turn for political support on their part for the federal economic, foreign, and defense policies.

The Montan-Mitbestimmungsgesetz, which gave workers unprecedented influence on management issues, affects large enterprises in the iron and steel industries with more than 1,000 employees. It obliges the supervisory boards of companies (Aufsichtsräte) to be made up equally of representatives of the employers' and the workers' side, plus one neutral member.

The laws were extended in 1972 and 1976 to all large corporations, increasing the rights of workers to influence in plant management and job structuring. The general Codetermination Act of 1976 affects all corporations with more than 2,000 employees. Although the basic provision regarding the composition of the supervisory boards remains equal to that of the Iron and Steel Codetermination Act, decisive details restrict the influence of labor in this law. First, one of the representatives of the workers' side has to be an employee of the management level, who does not necessarily represent the interests of the employed. Furthermore, the chairperson of the supervisory board cannot be nominated without consent of the employer. The chair can cast the decisive vote in tied situations in the board.

The Works Constitution Act of 1972 (Betriebsverfassungsgesetz) regulates workers' representation in small and medium-sized companies. In joint stock companies with up to 2,000 employees, and in any other type of enterprise with 500 - 2,000 employees, the share of workers' representatives on the supervisory boards is one third. In smaller corporations, employees do not have any extended influence on management. However, they can form workers' councils (Betriebsräte) in any enterprise with more than five employees. These councils have a voice in social and personnel matters. The law commits workers' councils to cooperate with with companies rather than seeking confrontation. It explicitly forbids exertion of pressure on companies. The Works Constitution Act ensures representation of both unionized and non-union workers, but because of high levels of unionization in Germany, union members dominate most councils (see table).

Capital and Labor -- The Case of Germany -- Codetermination -- A Closer Look: Codetermination