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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 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, demand-side 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://www.ifw-members.ifw-kiel.de/publications/east-german-unemployment-the-myth-of-the-irrelevant-labor-market-1/Kap1435.pdf
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Publisher Info
Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1435.

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Length: 20 pages
Date of creation: Jul 2008
Date of revision:
Handle: RePEc:kie:kieliw:1435

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

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Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General

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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!]
    Other versions:
  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!]
    Other versions:
  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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This page was last updated on 2009-11-24.

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