Advanced Search
MyIDEAS: Login to save this article or follow this journal

Escaping the unemployment trap: The case of East Germany

Contents:

Author Info

  • Merkl, Christian
  • Snower, Dennis J.

Abstract

This paper addresses the question of why high unemployment rates tend to persist even after their proximate causes have been reversed (e.g., after wages relative to productivity have fallen). We suggest that the longer people are unemployed, the greater is their cumulative likelihood of falling into a low-productivity "trap," through the attrition of skills and work habits. We develop a model along these lines, which allows us to bridge the gap between high macroeconomic employment persistence versus relatively high microeconomic labor market flow numbers. We calibrate the model for East Germany and examine the effectiveness of three employment policies in this context: (i) a weakening of workers' position in wage negotiations due to a drop in the replacement rate or firing costs, leading to a fall in wages, (ii) hiring subsidies, and (iii) training subsidies. We show that the employment effects of these policies depend crucially on whether low-productivity traps are present. Journal of Comparative Economics 36 (4) (2008) 542-556.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6WHV-4TB186C-1/2/177ff94bf185894c09b08f6c8c56f08b
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 36 (2008)
Issue (Month): 4 (December)
Pages: 542-556

as in new window
Handle: RePEc:eee:jcecon:v:36:y:2008:i:4:p:542-556

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622864

Related research

Keywords: Labor market Labor market trap East Germany Unemployment;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Michael Lechner & Ruth Miquel & Conny Wunsch, 2005. "The Curse and Blessing of Training the Unemployed in a Changing Economy: The Case of East Germany after Unification," University of St. Gallen Department of Economics working paper series 2005 2005-15, Department of Economics, University of St. Gallen.
  2. Weitzman, Marchin L, 1989. "A Theory of Wage Dispersion and Job Market Segmentation," The Quarterly Journal of Economics, MIT Press, vol. 104(1), pages 121-37, February.
  3. Wilke, Ralf A., 2004. "New Estimates of the Duration and Risk of Unemployment for West-Germany," ZEW Discussion Papers 04-26, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. Hans-Werner Sinn, 2000. "Germany's Economic Unification. An Assessment after Ten Years," CESifo Working Paper Series 247, CESifo Group Munich.
  5. Lechner, Michael & Wunsch, Conny, 2006. "Active labour market policy in East Germany : waiting for the economy to take off," IAB Discussion Paper 200620, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  6. Brown, Alessio J G & Merkl, Christian & Snower, Dennis J., 2007. "Comparing the Effectiveness of Employment Subsidies," CEPR Discussion Papers 6334, C.E.P.R. Discussion Papers.
  7. Nicola Fuchs-Schündeln & Rima Izem, 2007. "Explaining the Low Labor Productivity in East Germany. A Spatial Analysis," Kiel Working Papers 1307, Kiel Institute for the World Economy.
  8. Lommerud, Kjell Erik & Sandvik, Bjørn & Straume, Odd Rune, 2002. "Good jobs, bad jobs and redistribution," Discussion Papers, various Research Units FS IV 02-21, Social Science Research Center Berlin (WZB).
  9. Harald Uhlig, 2006. "Regional Labor Markets, Network Externalities and Migration: The Case of German Reunification," SFB 649 Discussion Papers SFB649DP2006-004, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  10. 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.
  11. Michael C. Burda, 2006. "Factor Reallocation in Eastern Germany after Reunification," American Economic Review, American Economic Association, vol. 96(2), pages 368-374, May.
  12. William T. Dickens & Kevin Lang, 1985. "A Test of Dual Labor Market Theory," NBER Working Papers 1314, National Bureau of Economic Research, Inc.
  13. Faini, Riccardo & Galli, Giampaolo & Gennari, Pietro & Rossi, Fulvio, 1997. "An empirical puzzle: Falling migration and growing unemployment differentials among Italian regions," European Economic Review, Elsevier, vol. 41(3-5), pages 571-579, April.
  14. Snower, Dennis J. & Merkl, Christian, 2006. "The Caring Hand that Cripples: The East German Labor Market After Reunification (Detailed Version)," IZA Discussion Papers 2066, Institute for the Study of Labor (IZA).
  15. Franz, Wolfgang & Steiner, Viktor, 1999. "Wages in the East German transition process: facts and explanations," ZEW Discussion Papers 99-40, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  16. Taylor, Jim & Bradley, Steve, 1997. "Unemployment in Europe: A Comparative Analysis of Regional Disparities in Germany, Italy and the UK," Kyklos, Wiley Blackwell, vol. 50(2), pages 221-45.
  17. Decressin, Jörg & Fatás, Antonio, 1994. "Regional Labour Market Dynamics in Europe," CEPR Discussion Papers 1085, C.E.P.R. Discussion Papers.
  18. Akerlof, George A & Yellen, Janet L, 1988. "Fairness and Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 44-49, May.
  19. Dickens, William T & Lang, Kevin, 1988. "The Reemergence of Segmented Labor Market Theory," American Economic Review, American Economic Association, vol. 78(2), pages 129-34, May.
  20. Hans-Werner Sinn, 1995. "Staggering along: wages policy and investment support in East Germany," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(4), pages 403-426, December.
  21. Yu-Fu Chen & Michael Funke, 2003. "Labour Demand in Germany: An Assessment of Non-Wage Labour Costs," CESifo Working Paper Series 952, CESifo Group Munich.
  22. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis And The European Unemployment Problem," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90 National Bureau of Economic Research, Inc.
  23. Joachim Ragnitz, 2007. "Explaining the East German Productivity Gap � The Role of Human Capital," Kiel Working Papers 1310, Kiel Institute for the World Economy.
  24. Jeremy I. Bulow & Lawrence H. Summers, 1985. "A Theory of Dual Labor Markets with Application to Industrial Policy, Discrimination and Keynesian Unemployment," NBER Working Papers 1666, National Bureau of Economic Research, Inc.
  25. Henrik Jacobsen Kleven & Peter Birch S¯rensen, 2004. "Labour Tax Reform, the Good Jobs and the Bad Jobs," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(1), pages 45-64, 03.
  26. David Gray, 2004. "Persistent Regional Unemployment Differentials Revisited," Regional Studies, Taylor & Francis Journals, vol. 38(2), pages 167-176.
  27. Hans-Werner Sinn & Frank Westermann, 2001. "Two Mezzogiornos," NBER Working Papers 8125, National Bureau of Economic Research, Inc.
  28. Schnabel, Claus, 2005. "Gewerkschaften und Arbeitgeberverbände: Organisationsgrade, Tarifbindung und Einflüsse auf Löhne und Beschäftigung," Discussion Papers 34, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  29. McDonald, Ian M & Solow, Robert M, 1985. "Wages and Employment in a Segmented Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1115-41, November.
  30. Christian Grund, 2006. "Severance payments for dismissed employees in Germany," European Journal of Law and Economics, Springer, vol. 22(1), pages 49-71, July.
  31. Burda, Michael C. & Fuchs-Schündeln, Nikola & Buch, Claudia M. & Sinn, Hans-Werner, 2006. "Factor reallocation in eastern Germany after reunification," Munich Reprints in Economics 19974, University of Munich, Department of Economics.
  32. Jennifer Hunt, 2004. "Convergence and determinants of non-employment durations in Eastern and Western Germany," Journal of Population Economics, Springer, vol. 17(2), pages 249-266, 06.
  33. T. Ghilarducci & M. Lee, 2005. "Female Dual Labour Markets And Employee Benefits," Scottish Journal of Political Economy, Scottish Economic Society, vol. 52(1), pages 18-37, 02.
  34. J. Paul Elhorst, 2003. "The Mystery of Regional Unemployment Differentials: Theoretical and Empirical Explanations," Journal of Economic Surveys, Wiley Blackwell, vol. 17(5), pages 709-748, December.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. 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.
  2. Yvonne Schindele, 2010. "How Long Does it Take to Become an Entrepreneurial Society - The Case of German Convergence in Self-Employment," Jena Economic Research Papers 2010-015, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  3. Gartner, Hermann & Merkl, Christian & Rothe, Thomas, 2009. "They Are Even Larger! More (on) Puzzling Labor Market Volatilities," IZA Discussion Papers 4403, Institute for the Study of Labor (IZA).
  4. Dennis J. Snower & Alessio J. G. Brown & Christian Merkl, 2009. "Globalization and the Welfare State: A Review of Hans-Werner Sinn's Can Germany Be Saved?," Journal of Economic Literature, American Economic Association, vol. 47(1), pages 136-58, March.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:jcecon:v:36:y:2008:i:4:p:542-556. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.