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East German unemployment: the myth of the irrelevant labor market

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Author Info
Christian Merkl
Dennis Snower

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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.

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File URL: http://mesharpe.metapress.com/link.asp?target=contribution&id=42U238R359180542
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Publisher Info
Article provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.

Volume (Year): 31 (2008)
Issue (Month): 1 (September)
Pages: 151-165
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Handle: RePEc:mes:postke:v:31:y:2008:i:1:p:151-165

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348

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Related research
Keywords: East Germany; labor market trap; unemployment;

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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.:
  1. Christian Merkl & Dennis J. Snower, 2007. "Escaping the Unemployment Trap — The Case of East Germany," Kiel Working Papers 1309, Kiel Institute for the World Economy. [Downloadable!]
  2. Burda, Michael C, 1993. "The Determinants of East-West German Migration: Some First Results," CEPR Discussion Papers 764, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. M. Burda & W. Härdle & M. Müller & A. Werwatz, . "Semiparametric Analysis of German East-West Migration Intentions: Facts and Theory," Sonderforschungsbereich 373 1998-3, Humboldt Universitaet Berlin.
    Other versions:
  4. Jennifer Hunt, 2000. "Why Do People Still Live in East Germany?," Discussion Papers of DIW Berlin 201, DIW Berlin, German Institute for Economic Research. [Downloadable!]
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  5. Wolfgang Lechthaler & Christian Merkl & Dennis Snower, 2008. "Monetary Persistence and the Labor Market: A New Perspective," Kiel Working Papers 1409, Kiel Institute for the World Economy. [Downloadable!]
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  6. 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. [Downloadable!]
    Other versions:
  7. 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. [Downloadable!] (restricted)
  8. 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(2001-2), pages 1-92. [Downloadable!]
  9. John B. Hall & Udo Ludwig, 2007. "Explaining persistent unemployment in eastern Germany," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 29(4), pages 601-619, July. [Downloadable!] (restricted)
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