Long-term unemployment during the transition to a market economy: Eastern Germany after unification

Long-term unemployment in Eastern Germany in the two-years period since Currency, Economic and Social Union is analyzed by means of a discrete hazard rate model of individual re-employment behaviour estimated on the first three waves of the German Socio-Economic Panel. Although most unemployment spells end in employment within a few months, long-term unemployment has already become an important phenomenon of the transition process in Eastern German. While for prime-aged married males long-term unemployment is of little importance, its incidence is particularly high among older workers and married females, especially those with small children. There is strong evidence for duration and occurrence dependence effects in the unemployment process: the hazard rate from unemployment into employment declines sharply after the first few months and stabilizes at a relatively low level, while the experience of previous unemployment reduces an individual's future re-employment probability significantly.