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Regional Labor Markets, Network Externalities and Migration: The Case of German Reunification

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  • Harald Uhlig

Abstract

Fifteen years after German reunification, the facts about slow regional convergence have born out the prediction of Barro (1991), except that migration out of East Germany has not slowed down. I document that in particular the 18-29 year old are leaving East Germany, and that the emigration has accelerated in recent years. To understand these patterns, I provide an extension of the standard labor search model by allowing for migration and network externalities. In that theory, two equilibria can result: one with a high networking rate, high average labor productivity, low unemployment and no emigration (“West Germany”) and one with a low networking rate, low average labor productivity, high unemployment and a constant rate of emigration (“East Germany”). The model does not imply any obviously sound policies to move from the weakly networked equilibrium to the highly networked equilibrium.

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Bibliographic Info

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2006-004.

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Length: 52 pages
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2006-004

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Keywords: German reunification; labor market search; network externalities; migration; regional economics;

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  1. Sinn, Hans-Werner, 2002. "Germany’s Economic Unification: An Assessment after Ten Years," Munich Reprints in Economics 19643, University of Munich, Department of Economics.
  2. 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.
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