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East German unemployment: the myth of the irrelevant labor market

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  • Christian Merkl
  • Dennis Snower

Abstract

This paper indicates that East Germany's unemployment problem originates primarily in the labor market, caused by the fast wage adjustment after German reunification. We model the resulting labor market "traps" in a search and matching framework, show that they are difficult to overcome, and provide empirical evidence. We argue that under these circumstances, demandside policies are effective mainly when they increase the economy's overall productivity and thereby help overcome the labor market traps.

Suggested Citation

  • Christian Merkl & Dennis Snower, 2008. "East German unemployment: the myth of the irrelevant labor market," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 31(1), pages 151-165, September.
    • Handle: RePEc:mes:postke:v:31:y:2008:i:1:p:151-165
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    1. Lechthaler, Wolfgang & Merkl, Christian & Snower, Dennis J., 2010. "Monetary persistence and the labor market: A new perspective," Journal of Economic Dynamics and Control, Elsevier, vol. 34(5), pages 968-983, May.
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    5. Felix Büchel ; Johannes Schwarze, 1994. "Die Migration von Ost- nach Westdeutschland: Absichtserklärung und Realisierung," Discussion Papers of DIW Berlin 87, DIW Berlin, German Institute for Economic Research.
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    7. Dewatripont,Mathias & Hansen,Lars Peter & Turnovsky,Stephen J. (ed.), 2003. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9780521818728, September.
    8. Dennis J. Snower & Christian Merkl, 2006. "The Caring Hand that Cripples: The East German Labor Market after Reunification," American Economic Review, American Economic Association, vol. 96(2), pages 375-382, May.
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    19. Michael C. Burda & Jennifer Hunt, 2001. "From Reunification to Economic Integration: Productivity and the Labor Market in Eastern Germany," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(2), pages 1-92.
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    Cited by:

    1. Witkowska Dorota, 2016. "Comparison of Women’s Situation in the Labour Market in the Former GDR and Poland," Comparative Economic Research, Sciendo, vol. 19(2), pages 129-148, June.

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    More about this item

    Keywords

    East Germany; labor market trap; unemployment;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies

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