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The Invisible Border between East and West Germany

Author

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  • Sebastian Heise

    (Federal Reserve Bank of New York)

  • Tommaso Porzio

    (University of California, San Diego)

Abstract

More than 25 years after the fall of the Iron Curtain created a unified Germany, the country still seems like two distinct nations in many aspects. We show that average wage in West Germany is, in real terms and controlling for individual characteristics, 20% larger than in East. What prevents workers from taking advantage of this wage difference? In this paper, we leverage rich matched employer-employee data together with a new theoretical framework to study workers' mobility across establishments and unemployment, both within and across East and West Germany, to uncover the drivers behind the “invisible border”. We show that the East-West wage gap is sustained by a strong regional identity of workers.

Suggested Citation

  • Sebastian Heise & Tommaso Porzio, 2018. "The Invisible Border between East and West Germany," 2018 Meeting Papers 605, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:605
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    References listed on IDEAS

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    1. Alwyn Young, 2013. "Inequality, the Urban-Rural Gap, and Migration," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(4), pages 1727-1785.
    2. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1257-1278, December.
    3. Gharad Bryan & Melanie Morten, 2017. "The Aggregate Productivity Effects of Internal Migration: Evidence from Indonesia," NBER Working Papers 23540, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Marcel Henkel & Tobias Seidel & Jens Suedekum, 2021. "Fiscal Transfers in the Spatial Economy," American Economic Journal: Economic Policy, American Economic Association, vol. 13(4), pages 433-468, November.
    2. Barbara Boelmann & Anna Raute & Uta Schönberg, 2020. "Wind of Change? Cultural Determinants of Maternal Labor Supply," Working Papers 914, Queen Mary University of London, School of Economics and Finance.
    3. Barbara Boelmann & Anna Raute & Uta Schönberg, 2020. "Wind of Change? Cultural Determinants of Maternal Labor Supply," RF Berlin - CReAM Discussion Paper Series 2020, Rockwool Foundation Berlin (RF Berlin) - Centre for Research and Analysis of Migration (CReAM).
    4. Boelmann, Barbara & Raute, Anna & Schönberg, Uta, 2020. "Wind of Change? Cultural Determinants of Maternal Labor Supply," IAB-Discussion Paper 202030, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

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