Unification and the Policy Predicament in Germany
AbstractWe argue that wages have increased so far ahead of labour productivity in East Germany as to produce a problem that will continue to hound German policy-makers for the next two decades. Despite rapid rates of capital accumulation (around 9%) and growth (around 5%) in East Germany over the coming ten years, our estimates show that even if wage catch-up decelerates greatly, as long as it continues, the rate of unemployment in the East will still be twice as high as in the West in another ten years. Alternatively, if wage discipline forces the Eastern unemployment rate to come down to the Western level, wage differentials will widen substantially over these next ten years. Thus serious problems loom ahead.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 956.
Date of creation: May 1994
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Other versions of this item:
- F15 - International Economics - - Trade - - - Economic Integration
- F20 - International Economics - - International Factor Movements and International Business - - - General
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
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