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.     

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.     

How unification and immigration affected the German income distribution

The German economy is not only affected by unification of Germany but by a significant influx of immigrants from abroad and huge migration from East to West Germany around the date of unification. Data from the German Socio-Economic Panel Study (GSOEP) allows one to disentangle those effects by decomposition of the Theil I(0)-Index of inequality. In addition, the paper offers insights into the transition from a socalist economy into a market oriented one.     

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.     

Teenage pregnancies and births in Germany: patterns and developments

We study the development of teenage fertility in East and West Germany using data from the German Socioeconomic Panel and from the German Mikrozensus. Following the international literature we derive hypotheses on the patterns of teenage fertility and test whether they are relevant to the German case. We find that teenage fertility is associated with teenage age and education, with the income of the teenager’s family, with migration status, residence in East Germany and aggregate unemployment. Our evidence supports counter-cyclical teenage fertility.     

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 intergenerational transmission of education and equality of educational opportunity in East and West Germany

Socialist societies often emphasized the abolition of traditional social classes. To achieve this objective, educational opportunities were at times ‘actively managed’ and allocated to children of less educated parents. What happened to these patterns after the demise of socialist rule in Eastern Europe? We study the development of educational mobility after the fall of the iron curtain in East Germany and compare the relevance of parental educational background for secondary schooling in East and West Germany. Based on the data from the German Mikrozensus we find that educational mobility is lower in East than in West Germany and that it has been falling in East Germany after unification. While the educational advantage of girls declined over time, having many siblings presents a more substantial disadvantage in East than in West Germany.     

INNOVATION AND EXPORT PERFORMANCE: ADJUSTMENT AND REMAINING DIFFERENCES IN EAST AND WEST GERMAN MANUFACTURING

Abstract

The economic situation in Germany 16 years after reunification is marked by the fading out of the adjustment process between East and West. This paper refers to this context analyzing the export behavior comparing firms in West and East Germany. Our estimates confirm a strong relationship between innovations and export performance as well as structural differences between East and West German firms. East German firms are less likely to export than firms in the West. Besides, West German medium technology firms are comparable in their export behavior to high tech firms while East German firms are more similar to the low technology sector. Labor productivity turns out to be more important in East Germany. We interpret these findings as a specialization of West German firms towards technologically-driven high-quality markets, whereas East German companies are faced with higher sunk costs and seem to operate more often in less dynamic, price-sensitive markets.     

The impact of two different economic systems on dishonesty

Using an artefactual field experiment, this paper tests the long-term implications of living in a specific economic system on individual dishonesty. By comparing cheating behaviour across individuals from the former socialist East of Germany with those of the capitalist West of Germany, we examine behavioural differences within a single country. We find long-term implications of living in a specific economic system for individual dishonesty when social interactions are possible: participants with an East German background cheated significantly more on an abstract die-rolling task than those with a West German background, but only when exposed to the enduring system of former West Germany. Moreover, our results indicate that the longer individuals had experienced socialist East Germany, the more likely they were to cheat on the behavioural task.     

The east german disease revisited

This paper attempts to explain the development of the East German economy since the political, social, and economic union with West Germany in 1990. An earlier contribution [Greiner et al., 1994] showed the different effects that produced joint deindustrialization in East Germany as an analogy of the well-known Dutch Disease phenomenon. This paper examines recent East German time series of main economic variables since 1994. Though the business sector and the unions are ever more willing to correct errors of the past, fiscal transfers from West to East Germany continue to exert their pressure on the tradeables sector. Economic policy should encourage savings in East Germany and gradually change the structure of (declining) transfers to expenditures that generate new capacities.     

Is Part-Time Employment after Childbirth a Stepping-Stone into Full-Time Work? A Cohort Study for East and West Germany

Does part-time work support first-time mothers’ employment by providing a stepping-stone into full-time work in Germany? Using data from the German Socio-Economic Panel from 1984–2012, this study compares three different age cohorts of first-time East and West German mothers to investigate whether there has been any convergence between East and West Germany in the way women use part-time employment. Results show that mothers in West Germany in all cohorts tended to remain in part-time employment for longer periods than those in East Germany. Part-time employment more often provided a stepping-stone into full-time employment in East Germany than in West Germany. East German women who gave birth after reunification were less likely than older cohorts to experience a transition from part-time to full-time work. Thus, part-time employment not followed by subsequent full-time work has become more common in the East.     

The East German wage structure after transition1

Abstract We extend the literature on transition economies’ wage structures by investigating the returns to tenure and experience. This study applies recent panel data and estimation approaches that control for hitherto neglected biases. We compare the life‐cycle structure of East and West German wages for fulltime employed men in the private sector. The patterns in the returns to seniority are similar for the two regional labour markets. The returns to experience lag behind in the East German labour market, even almost 20 years after unification, with significant differences particularly for high‐skill workers. The results are robust when only individuals who started their labour market career in the market economy are considered. We expect that the different returns are related to the heterogeneity of work experience gathered in East as compared with West Germany.     

The Biological Standard of Living in the Two Germanies

Abstract. Physical stature is used as a proxy for the biological standard of living in the two Germanies before and after unification in an analysis of a cross-sectional sample (1998) of adult heights, as well as among military recruits of the 1990s. West Germans tended to be taller than East Germans throughout the period under consideration. Contrary to official proclamations of a classless society, there were substantial social differences in physical stature in East Germany. Social differences in height were greater in the East among females, and less among males than in the West. The difficulties experienced by the East German population after 1961 is evident in the increase in social inequality of physical stature thereafter, as well as in the considerable gap relative to the height of the West German population. After unification, however, there is a tendency for East German males, but not of females, to catch up with their West German counterparts.     

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.     

Tear down this wall: on the persistence of borders in trade

Abstract Why do borders still matter for economic activity? The reunification of Germany in 1990 provides a unique natural experiment for examining the effect of political borders on trade. With the fall of the Berlin Wall and the rapid formation of a political and economic union, strong and strictly enforced administrative barriers to trade between East Germany and West Germany were eliminated completely within a very short period of time. Remarkable persistence in intra‐German trade patterns along the former East‐West border suggests that border effects are neither statistical artefacts nor driven by administrative barriers to trade, but arise from economic fundamentals.     

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.     

Growth Effects of EU Membership: The Case of East Germany

The East German experience after unification in 1990 probably comes close to what might be called a controlled experiment for assessing the growth effects of EU membership. This article uses an open-economy neoclassical growth model as a measure of reference against which the actual performance of the East German economy can be evaluated. With no obvious differences in institutions and technology, and with physical capital accumulation in East Germany exceeding the West German rate, differences in human capital remain as the major reason for differences between the theoretical and the actual East German growth rate. Simulation results suggest that East Germany's stock of human capital per worker reaches only about one third of the West Germany level. The main lesson from the East German experience for other EU accession countries is that catching up may come to a halt below the EU average, even under pretty favorable institutional and financial conditions.     

INCOME INEQUALITY IN GERMANY DURING THE 1980s AND 1990s

The paper estimates a variety of inequality measures for three sub-samples of the German population using cross-sectional data on equivalent income from the German Socio-Economic Panel (GSOEP). The sub-populations under consideration are residents of West Germany including foreigners for the years 1984 to 1996, residents of East Germany for the years 1990 to 1996 and a comprehensive German population for the years 1990 to 1996. Bootstrap methods are applied to test whether changes in inequality are statistically significant. In order to account for panel attrition and over-sampling, sample weights are incorporated into the estimation procedure. The empirical results confirm the relative stability of the West German income distribution. While income inequality in West Germany has generally not altered in an economically relevant way over the period 1985 to 1996, inequality in East Germany has increased after reunification. Despite this increase, inequality remains substantially higher in the western part of the country. Convergence of eastern mean income to the western level generally overcompensated the rise in inequality in East Germany, so that the level of inequality in unified Germany is lower in 1996 than in 1990.     

Wages in the East German Transition Process: Facts and Explanations

We analyze wage developments in the East German transition process both at the macro- and at the microeconomic level. At the macroeconomic level, we draw special attention to the important distinction between product and consumption wages, describe the development of various wage measures, labor productivity and unit labor costs in East Germany in relation to West Germany, and relate these developments to the system of collective wage bargaining. At the microeconomic level, we describe changes in the distribution of hourly wages between 1990 and 1997 and analyze the economic factors determining these changes by way of empirical wage functions estimated on the basis of the Socio-Economic Panel for East Germany. The paper also draws some conclusions on the likely future course of the East–West German wage convergence process.     

Temporary overpessimism: Job loss expectations following a large negative employment shock

Job loss expectations were widespread amongst workers in East Germany following reunification with West Germany. Though experiencing a large negative employment shock, East German workers were nevertheless overpessimistic immediately after reunification with respect to their job loss risk. Over time, job loss expectations fell and converged to West German levels, which was driven by a stabilizing economic environment and by an adaptation of the interpretation of economic signals with workers learning to distinguish individual risk from firm-level risk. In fact, conditional on actual job loss risk, East German workers quickly caught up to West Germans regarding the share of correctly predicted job losses.