Economic Insecurity and Organizational Trust: German Work Councilor's and the Global Economic Crisis

How does economic insecurity affect trust? The resilience of the German economy to the 2008 financial crisis was driven by strong, firm level cooperation between work councilors and management. Through company level agreements, many firms secured both employment and the survival of the firm. However, given the distributional consequences such cooperation has, agreements also required considerable trust.

The crisis exposes a fundamental puzzle of trust under uncertainty: While greater economic insecurity requires greater trust to achieve cooperative outcomes, it also makes trust more costly and thus more difficult. The question becomes: How and under which conditions does economic insecurity affect trust?

Combining panel surveys with qualitative case studies, I explore how the 2008 financial crisis affected the level of trust between work councilors and management. In this way, I explores both an important aspect of the 2008 financial crisis,and more generally, how economic stress affects social relations.

I argue that insecurity in itself does not necessarily reduce trust. Instead, the effect of economic stress is moderated by social relations and the quality of interaction between work councilors and management.