Lost in transition?

Using data for Germany and 23 other economies in Eastern and Western Europe, this paper estimates the monetary returns to education acquired under communism more than 10 years after the fall of the Berlin Wall. We show that, in the 2000s, Eastern European workers who completed their education under communism earned in the 2000s similar returns to their education as did workers belonging to the same age cohorts who studied in Western Europe. This might suggest that education under communism is still as valuable as education attained in Western Europe. However, individuals educated under communism are more likely than their Western counterparts to be unemployed, retired or disabled, and therefore to earn lower or zero returns to their education. Moreover, when we allow the returns to pre‐ and post‐secondary education to differ, we find that senior males who have attained only primary or secondary education under communism are penalized in the post‐transition Eastern European labour markets, and that those who have completed post‐secondary education under communism enjoy in these markets higher payoffs to their education than similarly educated Western European individuals who are employed in the West.     

EQUALITY OF OPPORTUNITY: EAST VS. WEST GERMANY

The case of German reunification has been subject to extensive research on earnings inequality and labour market integration. However, little is known about the development of equality of opportunity (EOp) in East and West Germany after 1990. Using German micro data, we empirically analyse how circumstances beyond the sphere of individual control relate to inequality in East and West Germany. Our results show that EOp is larger in East than in West Germany. However, despite increasing income inequality, EOp remained surprisingly constant.     

Catching-up of East German Labour Productivity in the 1990s

We provide empirical evidence for exogenous and endogenous catching-up of East German labour productivity to West German levels. We argue that labour productivity in East Germany has caught up faster than has happened elsewhere. The sudden formation of the German Monetary Union was followed by large transfers to East Germany, migration of workers to West Germany, reorganization and privatization of East German firms. This has quickly led to a partial closing of the organizational, idea and object gaps that existed between East and West Germany. This paper analyses labour productivity in East and West Germany using both aggregate German data and unbalanced panel analysis of developments in East and West Germany. Factors affecting the organization of production, and especially privatization and 'foreign' firms, are found to be particularly important in this context.     

Active labour market policy in East Germany

We investigate the effects of the most important East German active labour market programmes on the labour market outcomes of their participants. The analysis is based on a large and informative individual database derived from administrative data sources. Using matching methods, we find that over a horizon of 2.5 years after the start of the programmes, they fail to increase the employment chances of their participants in the regular labour market. However, the programmes may have other effects for their participants that may be considered important in the especially difficult situation experienced in the East German labour market.     

How does entry regulation influence entry into self‐employment and occupational mobility?1

We analyse how an entry regulation that imposes a mandatory educational standard affects entry into self‐employment and occupational mobility. We exploit German reunification as a natural experiment and identify regulatory effects by comparing differences between regulated and unregulated occupations in East Germany with the corresponding differences in West Germany after reunification. Consistent with our expectations, we find that entry regulation reduces entry into self‐employment and occupational mobility after reunification more in regulated occupations in East Germany than in West Germany. Our findings are relevant for transition or emerging economies as well as for mature market economies requiring large structural changes after unforeseen economic shocks.     

The role of social networks in determining migration and labour market outcomes

This paper empirically examines social network explanations for migration decisions in the context of German reunification. Using longitudinal data from the German Socio‐Economic Panel, we first show that the presence of a family in West Germany is an important predictor for the migration hazard rate of East Germans. We then explore whether pre‐migration networks have a discernible impact on the economic and social assimilation of East German immigrants in West Germany. We find that East German immigrants are more likely to be employed and to hold higher paying jobs when socially connected to the West prior to emigrating.     

The curse of low expectations

We examine how a remedial education programme for primary school‐age children affects parental expectations about their children's future. Using original survey data we collected in Serbia, we investigate whether expectations on labour market prospects and educational attainment change as a consequence of exposure to the Roma Teaching Assistant programme. Our results show that parents of pupils in treated schools expect higher returns to education for their children and are more likely to expect them to achieve a secondary level of education. We also investigate the possible mechanisms in place due to the characteristics of the programme: remedial education and role model.     

Unemployment and Right‐wing Extremist Crime*

It is frequently argued that unemployment plays a crucial role in the occurrence of right‐wing extremist crimes (RECs). We test this hypothesis empirically using data from Germany. We find that right‐wing criminal activities occur more frequently when unemployment is high. The substantial difference in the numbers of RECs occurring in the East and West German states can mostly be attributed to differences in unemployment. This finding reinforces the importance of unemployment as an explanatory factor for RECs, and it questions explanations based solely on the different socialization in former communist East Germany and the liberal West German states.     

Ethnic patterns of returns to education in Bulgaria

It is widely accepted that disparities in education contribute to the poor labour market outcomes experienced by ethnic minority groups and consequently to their poverty. In this article, I analyse differential educational benefits in Bulgaria and compare returns to education for the Roma minority with the majority population and the Turkish minority. I show that both ethnic minority groups have lower education levels and employment rates than the majority population and that they also have lower returns to education. This result could be related to minorities' lower education quality as well as to discrimination in the labour market. Integration policies should thus aim to improve employability and labour market competence of vulnerable groups starting from school.     

Who stays,who goes,who returns?

We study the determinants of East–West migration within Germany during the period 1990–2006, using administrative data, the German Microcensus and the German Socio‐Economic Panel. We find that in addition to income prospects and employment status, two well‐known determinants of migration, psychological and social factors play an important role in determining the migration decision. Men and women move from East to West in proportionate numbers, but among individuals who lived in the East in 1989 women are more likely to migrate. The migrant body in the second wave of migration, starting in the late 1990s, is increasingly composed of young, educated people. By focusing on differences between temporary and permanent migrants, we find that older and single individuals are more likely to return East than stay permanently in the West, compared with younger and married individuals. Finally, the life satisfaction of permanent migrants increases significantly after a move, while that of temporary migrants remains essentially flat.     

Measuring Search Frictions Using Japanese Microdata

This paper estimates individual‐level matching functions to measure search frictions in the Japanese labour market and presents the determinants of search duration. We employ administrative microdata that track the job search process of job seekers who left or lost their job in August 2005 and subsequently registered at their local public employment service. Our finding is that the matching function exhibits decreasing rather than constant returns‐to‐scale for job seekers and vacancies. We also find that after controlling for the benefits period, job seekers who lost their job involuntarily were more likely than those quitting voluntarily to exit from unemployment.     

The Curse and Blessing of Training the Unemployed in a Changing Economy: The Case of East Germany After Unification

Abstract. We analyse the effects of government-sponsored training for the unemployed conducted during East German transition. For the microeconometric analysis, we use a new, large and informative administrative database that allows us to use matching methods to address potential selection bias, to study different types of programmes and to observe labour market outcomes over eight years. We find strong evidence that, on average, the training programmes under investigation increase long-term employment prospects and earnings. However, as an important exception, the longer training programmes are not helpful for their male participants. At least part of the explanation for this negative result is that caseworkers severely misjudged the structure of the future demand for skills.     

Economic returns to schooling in urban China, 1988 to 2001

This study provides estimates of the returns to schooling in urban China over an extended period of economic reforms. We find a dramatic increase in the returns to education, from only 4.0 percent per year of schooling in 1988 to 10.2 percent in 2001. Most of the rise in the returns to education occurred after 1992 and reflected an increase in the wage premium for higher education. The rise is observed within groups defined by sex, work experience, region, and ownership, and is robust to the inclusion of different control variables. The timing and pattern of changing schooling returns suggest that they were influenced strongly by institutional reforms in the labor market that increased the demand for skilled labor. Journal of Comparative Economics 33 (4) (2005) 730–752.     

What is behind low wages in central and eastern Europe?

This paper compares wages across Europe in relation to the characteristics of workers and firms, with a particular focus on wage levels in central and eastern European countries. Worker and workplace endowments can be taken as a proxy for labour productivity. We estimate the extent to which wage differences observed at an aggregate level can be related to the different compositions of workforces and workplaces, as well as the types of jobs conducted in separate countries. We also decompose the observed differences in returns on endowments by identifying the sectors and occupational categories that contribute most to the wage gaps observed at the aggregate level. The wage gaps in low-wage countries actually appear larger once differences in worker, work and workplace characteristics are controlled for. In contrast, the differences in wages between high-wage countries diminish when we control for these endowments. The wage gap between East and West thus seems to be explained by a much lower return on skills and other characteristics rather than by differences in the composition of workforces and firms. Sectoral and occupational analysis suggests that central and eastern European countries have developed a generalised low-cost and low-wage model, with relative returns particularly low on higher skills. There is much less wage disparity across European countries in more labour intensive and lower-paid services sectors, such as accommodation and food service activities. The magnitude of the wage gap seems to be driven by the relative position of sectors and occupations in high-wage countries.     

Adaptability, productivity, and educational incentives in a matching model

We study the connections between the labour market and the education sector in a matching framework with ex-post wage bargaining. Workers have multidimensional skills and the search market is segmented by technology. Education is a time-consuming activity and determines jointly the scope - or adaptability - and intensity - or productivity - of individual skills. We establish three main results. First, unemployment provides incentives to schooling by raising the need for adaptability. Second, private returns to productivity are below social returns, but no hold-up phenomenon is involved. Third, due to wage and congestion externalities, private returns to adaptability exceed social returns. As a consequence, both over- and under-education may take place in equilibrium.     

Effectiveness of sequences of One-Euro-Jobs for welfare recipients in Germany

Empirical evidence reveals that German welfare recipients often participate in multiple active labour market programmes (ALMPs). However, evidence on the effectiveness of ALMPs exists mostly for single ALMP participations so far. This article evaluates the sequential participation in ALMPs for welfare recipients in Germany based on comprehensive administrative data to control for dynamic selection that arises in the evaluation of sequences. Using a dynamic causal model and an inflow sample of welfare recipients, the article analyses the effects of sequences of a public employment programme called One-Euro-Jobs on labour market outcomes. For female participants in One-Euro-Jobs in the first period, especially in West Germany, the results imply that participating in two consecutive One-Euro-Jobs compared with receiving only welfare benefits for two consecutive periods better facilitates integration into regular employment. Moreover, taking part in a One-Euro-Job directly after entry into welfare receipt is also more effective for participants in One-Euro-Jobs in the first period than taking part in a One-Euro-Job in a later period, especially for East German men (although not for West German women). However, I also find evidence of so-called programme careers and stepwise integration into regular employment.     

The Displacement Effect of Labour‐Market Programs: MONASH Analysis*

A key question concerning labour‐market programs is the extent to which they generate jobs for their target group at the expense of others. This effect is measured by displacement percentages. We describe a version of the MONASH model designed to quantify the effects of labour‐market programs. Our simulation results suggest that: (i) labour‐market programs can generate significant long‐run increases in employment; (ii) displacement percentages depend on how a labour‐market program affects the income trade‐off faced by target and non‐target groups between work and non‐work; and (iii) displacement percentages are larger in the short run than in the long run.     

RESEARCH AND DEVELOPMENT IN SMALL AND MEDIUM-SIZED ENTERPRISES: THE ROLE OF FINANCIAL CONSTRAINTS AND PUBLIC FUNDING

This paper presents microeconometric evidence on financing constraints for research and development activities in German small‐ and medium‐sized firms (SME). Special attention is paid to the role of public research and development (R&D) subsidies. For this purpose SMEs in West and East Germany are compared because these regions are very different in their supply of public R&D funding. The empirical evidence suggests that West German SMEs are financially constrained in their R&D activities by both internal and external resources. In East Germany, firms are not sensitive to external constraints, possibly due to high public R&D subsidies. The results show that R&D in East Germany is to a large extent driven by public subsidies and that the usual financial market mechanisms are dysfunctional with respect to R&D in this region.     

Income comparisons and attitudes towards foreigners - Evidence from a natural experiment

We exploit a natural experiment related to the German re-unification to address whether disutility from income comparisons affects attitudes towards foreigners. Our empirical approach rests upon East German individuals with West German relatives and friends. We use the exogenous variation of wealth of West Germans shortly after the fall of the Berlin Wall as an instrument to identify the effect of disutility from income comparisons on East Germans’ attitudes. We find robust evidence that East Germans express more negative attitudes towards foreigners, particularly from low-wage countries, if they worry about their economic status compared to better-off West Germans.