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Explaining the low labor productivity in East Germany: a spatial analysis

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  • Izem, Rima
  • Fuchs-Schündeln, Nicola

Abstract

This paper presents a spatial analysis of unemployment rates in Germany. The goal of this analysis is to explain the stubbornly low labor productivity and high unemployment rates in Eastern Germany. We build a model of commuting to distinguish between worker and job characteristics as the main causes of the low labor productivity, and use the method of simulated moments to estimate the East-West ratios of worker and job characteristics. The 'slope? of the unemployment rate across the former East-West border serves as the main identification of the model. The preliminary results suggest that East and West German skills are very similar, while job characteristics differ significantly between East and West.

Suggested Citation

  • Izem, Rima & Fuchs-Schündeln, Nicola, 2007. "Explaining the low labor productivity in East Germany: a spatial analysis," Kiel Working Papers 1307, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1307
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    References listed on IDEAS

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    6. Snower, Dennis J. & Merkl, Christian, 2006. "The caring hand that cripples: The East German labor market after reunification (detailed version)," Kiel Working Papers 1263, Kiel Institute for the World Economy (IfW Kiel).
    7. Fabio Canova & Morten Ravn, 2000. "The Macroeconomic Effects of German Unification: Real Adjustments and the Welfare State," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(3), pages 423-460, July.
    8. Harald Uhlig, 2006. "Regional Labor Markets, Network Externalities and Migration: The Case of German Reunification," American Economic Review, American Economic Association, vol. 96(2), pages 383-387, May.
    9. 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.
    10. Jörg Decressin, 1994. "Internal migration in West Germany and implications for East-West salary convergence," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 130(2), pages 231-257, June.
    11. Rothfels, Jacqueline, 1997. "Die ostdeutsche Wirtschaftsstruktur und die Produktivitätslücke," Wirtschaft im Wandel, Halle Institute for Economic Research (IWH), vol. 3(13), pages 15-21.
    12. 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.
    13. Ragnitz, Joachim & Beer, Siegfried, 1997. "Betriebsgröße und Arbeitsproduktivität im ostdeutschen Verarbeitenden Gewerbe," Wirtschaft im Wandel, Halle Institute for Economic Research (IWH), vol. 3(16), pages 11-13.
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    Cited by:

    1. Alessandra Fogli & Laura Veldkamp, 2011. "Nature or Nurture? Learning and the Geography of Female Labor Force Participation," Econometrica, Econometric Society, vol. 79(4), pages 1103-1138, July.
    2. Burda, Michael C., 2008. "What kind of shock was it? Regional integration and structural change in Germany after unification," Journal of Comparative Economics, Elsevier, vol. 36(4), pages 557-567, December.
    3. repec:zbw:ifwkwp:1309 is not listed on IDEAS
    4. Merkl, Christian & Snower, Dennis J., 2008. "Escaping the unemployment trap: The case of East Germany," Journal of Comparative Economics, Elsevier, vol. 36(4), pages 542-556, December.
    5. Kuehn, Zoe, 2012. "Migration, Wages, and Parental Background: Obstacles to Entrepreneurship and Growth in East Germany," MPRA Paper 49250, University Library of Munich, Germany.
    6. Juan Carlos Martinez Oliva, 2009. "Riunificazione intertedesca e politiche per la convergenza," Mo.Fi.R. Working Papers 14, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    7. Moser, Christoph & Stähler, Nikolai, 2009. "Spillover effects of minimum wages in a two-sector search model," Discussion Paper Series 1: Economic Studies 2009,01, Deutsche Bundesbank.

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    More about this item

    Keywords

    Transferability of Human Capital; Spatial Allocation of Labor;

    JEL classification:

    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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