The Caring Hand that Cripples: The East German Labour Market after Reunification
AbstractThe East German labor market has hardly made any progress since German reunification, despite massive migration flows and support from the West. We argue that East Germany is in trouble precisely because of the support it has received. This paper explores the phenomenon of 'the caring hand that cripples,' arising from bargaining by proxy, the adoption of the West German welfare system and the associated employment persistence. Even the steady decrease of labour cost (normalized by productivity) since the beginning of the 1990s did not help to kick start the East. We suggest that labor force participants fell into 'traps,' concerning low skills, ageing of the workforce, labour-saving capital and skills, capital underutilization, and unemployment arising from the decline of the tradeable sector.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5656.
Date of creation: May 2006
Date of revision:
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Other versions of this item:
- 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.
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
- P2 - Economic Systems - - Socialist Systems and Transition Economies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-10-28 (All new papers)
- NEP-LTV-2006-10-28 (Unemployment, Inequality & Poverty)
- NEP-MAC-2006-10-28 (Macroeconomics)
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