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.     

How well do individuals predict their future life satisfaction? Evidence from panel data following a nationwide exogenous shock

Abstract .  Using German panel data, we investigate how well individuals predict their own future life satisfaction. The context is the decade following the 1990 reunification of Germany, which provided a large shock to the future prospects of the inhabitants of the former East Germany. We find that the majority of East Germans significantly overestimated the satisfaction gains from reunification in the years immediately after transition, but by 1994 had converged on correct aggregate expectations. Some evidence of micro-heterogeneity in the prediction errors is found by age and education. For West Germans, we find some initial over-optimism, although less than for East Germans.     

Inequality trends for Germany in the last two decades: A tale of two countries

In this paper we first document inequality trends in wages, hours worked, earnings, consumption, and wealth for Germany from the last twenty years. We generally find that inequality was relatively stable in West Germany until the German reunification, and then trended upwards for wages and market incomes, especially after about 1998. Disposable income and consumption, on the other hand, display only a modest increase in inequality over the same period. These trends occurred against the backdrop of lower trend growth of earnings, incomes and consumption in the 1990s relative to the 1980s. In the second part of the paper we further analyze the differences between East and West Germans in terms of the evolution of levels and inequality of wages, income, and consumption.     

ECONOMIC RELATIONS BETWEEN WOMEN AND THEIR PARTNERS: AN EAST AND WEST GERMAN COMPARISON AFTER REUNIFICATION

abstract

This article compares women's and men's economic relations in East and West Germany following the 1990 reunification to exemplify the impact of varying opportunity structures on women's relative contribution to family income. West Germany's takeover set in motion a rapid transformation of East German institutions and employment structures. The analysis shows that women in West Germany became less dependent on their partners in the 1990s, largely because fewer women were housewives without earnings. In contrast, the contributions of women to the family economy in East Germany fell between 1990 and 1996. Afterwards, women in East Germany regained some of their economic power because of their partners' increasing difficulties sustaining employment. A multivariate analysis showed that the fact that women in West Germany were more likely to work less or not at all – especially if they were married or had children – accounted for much of the difference.     

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.     

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.     

Decomposing Lorenz and Concentration Curves*

We decompose the Lorenz curve (LC) and its associated concentration curve (CC) by population subgroups. To illustrate these decompositions, we examine changes in earnings inequality among West Germans, East Germans, and foreign guest workers during the recent German unification. We show that East German earnings have become less concentrated in the lower deciles of the overall German earnings distribution, whereas the earnings of West Germans and foreign guest workers have become more concentrated in the lower deciles.     

A different look at Lenin’s legacy: Social capital and risk taking in the Two Germanies

What are the long-term effects of Communism on economically relevant notions such as social trust, fairness, and scope of cooperation? To answer this question, we study the post-unification trajectory of convergence between East and West German individuals with regard to trust, cooperation, and risk. Our hypotheses are derived from a model of German unification that incorporates individual responses both to incentives and to values inherited from earlier generations as recently suggested in the literature. Using two waves of balanced panel data, we find that despite twenty years of unification East Germans are still characterized by a persistent level of social distrust. In comparison to West Germans, they are less inclined to see others as cooperative. East Germans are also found to have been more risk loving than West Germans. However, risk attitudes fully converged recently.     

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.     

The Covariance Structure of East and West German Incomes and its Implications for the Persistence of Poverty and Inequality

Abstract. Based on data from the German Socio-Economic Panel (GSOEP), this paper analyzes the dynamics of equivalent income in East and West Germany in the years following reunification. Special emphasis is given to the separation of permanent and transitory components, the persistence of transitory shocks and their implications for the persistence of poverty and inequality. The results suggest that in West Germany, between 52 and 69 per cent of cross-sectional income inequality was permanent, and that poor individuals stayed in poverty for two years on average. In East Germany, the share of the permanent component in overall income inequality rose continuously from 20 per cent in 1990 to 72 per cent in 1998, reaching a level near the one that prevailed in West Germany during the same period. The rising importance of time-invariant components in East German incomes was also reflected in expected poverty durations which slightly increased from 1.47 years in 1990 to 1.67 years in 1998.     

Risk Behavior of East and West Germans in Handling Personal Finances

When "Homo Economicus" stands for rationality of financial decision-making, then this is clearly an ideal state not found in real life. Instead, everyday financial decisions are made by using a number of risk-oriented behaviors, both positive and negative. We investigate the relationships between such personality traits and financial decisions following the theory of Brengelmann.

We compare financial risk behavior between East and West German citizens using two kinds of samples. One type of sample is drawn from the general East and West German populations. The other is drawn from the readers of the leading business magazine in East and West Germany. It is assumed that West Germans are more risk-oriented than East Germans and that readers of the business magazine are more risk-oriented than the non-readers.

The expectations were confirmed. In the general population, West Germans show higher risk excitement, but also a higher degree of strain than East Germans. East Germans are more likely to strive for property. Beyond that, business magazine readers differ from the average population. They show higher degrees of almost all relevant factors. In this subgroup, East Germans remind one of "Musterschuler" as far as handling finances is concerned: They show greater drive, control, and responsibility in financial matters, but feel less distracted than West Germans. These results may be explained by differences in socialization in the former FRG and GDR, where "capitalistic" and "socialistic" values, respectively, are supposed to have dominated theory and practice over long periods of time.     

Growth and Convergence in a Two-Region Model of Unified Germany

The paper sets up a two-region endogenous growth model to discuss growth and regional convergence of unified Germany. It emphasizes the role of private and public capital accumulation during the developing process. The theoretical part derives fiscal policy rules which establish convergence of regional output per capita and convergence of regional human wealth. To assess the speed of convergence the model is calibrated with German data. Given a fiscal policy rule that is consistent with the data on government spending in East and West Germany after unification the model suggests that East Germany will reach 80 per cent of West Germany's income per capita between 20 and 30 years after unification and that actual transfers are approximately sufficient to equalize regional human wealth. The results are compared with an extension of the model that includes wage-setting behaviour and unemployment in the eastern region.     

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.     

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.     

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.     

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.     

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.     

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.     

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.