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Explaining the low labor productivity in East Germany – A spatial analysis

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  • Fuchs-Schündeln, Nicola
  • Izem, Rima

Abstract

This paper sheds light on the transferability of human capital in periods of dramatic structural change by analyzing the unique event of German reunification. We explore whether the comparatively low labor productivity in East Germany after reunification is caused by the depreciation of human capital at reunification, or by unfavorable job characteristics. East German workers should have been hit harder by reunification the more specific human capital was. Treating both human capital and job characteristics as unobservables, we derive their relative importance in explaining the low labor productivity by estimating a spatial structural model that predicts commuting behavior across the former East–West border and the resulting regional unemployment rates. The identification of the model is based on the slope of the unemployment rate across the former border. The results indicate that East and West German skills are very similar, while job characteristics differ significantly between East and West in the sample period 1998–2004. Hence, they suggest that a significant part of the human capital accumulated in the East before 1990 was transferable.

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Bibliographic Info

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

Volume (Year): 40 (2012)
Issue (Month): 1 ()
Pages: 1-21

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Handle: RePEc:eee:jcecon:v:40:y:2012:i:1:p:1-21

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Web page: http://www.elsevier.com/locate/inca/622864

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Keywords: Transferability of human capital; Spatial allocation of labor;

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Citations

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Cited by:
  1. Prantl, Susanne & Spitz-Oener, Alexandra, 2014. "Interacting Product and Labor Market Regulation and the Impact of Immigration on Native Wages," IZA Discussion Papers 7882, Institute for the Study of Labor (IZA).
  2. Olga A. Demidova, 2014. "The asymmetric spatial effects for eastern and western regions of Russia," HSE Working papers, National Research University Higher School of Economics WP BRP 50/EC/2014, National Research University Higher School of Economics.
  3. Bartz, Kevin & Fuchs-Schündeln, Nicola, 2012. "The role of borders, languages, and currencies as obstacles to labor market integration," European Economic Review, Elsevier, Elsevier, vol. 56(6), pages 1148-1163.
  4. Heineck, Guido & Süssmuth, Bernd, 2012. "A different look at Lenin's legacy: Social capital and risk taking in the two Germanies," Working Papers, University of Leipzig, Faculty of Economics and Management Science 118, University of Leipzig, Faculty of Economics and Management Science.
  5. Friehe, Tim & Mechtel, Mario, 2014. "Conspicuous consumption and political regimes: Evidence from East and West Germany," European Economic Review, Elsevier, Elsevier, vol. 67(C), pages 62-81.
  6. Merkl, Christian & Snower, Dennis J., 2008. "Escaping the Unemployment Trap: The Case of East Germany," IZA Discussion Papers 3681, Institute for the Study of Labor (IZA).
  7. Christian Merkl & Dennis J. Snower, 2007. "Escaping the Unemployment Trap � The Case of East Germany," Kiel Working Papers, Kiel Institute for the World Economy 1309, Kiel Institute for the World Economy.
  8. Zoë Kuehn, 2010. "Migration, wages, and parental background: Obstacles to entrepreneurship and growth in East Germany," Working Papers, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales 2010-08, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales, revised 01 Sep 2011.
  9. Demidova, Olga, 2014. "Spatial-autoregressive model for the two groups of related regions (eastern and western parts of Russia)," Applied Econometrics, Publishing House "SINERGIA PRESS", Publishing House "SINERGIA PRESS", vol. 34(2), pages 19-35.

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