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. I document that low wages, high unemployment and increasing reliance on social security persist across wide regions of East Germany together with these migration patterns. To understand these patterns, I use an extension of the standard labor search model introduced in Uhlig (2006, 2008) 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
14553.
Length: Date of creation: Dec 2008 Date of revision: Handle: RePEc:nbr:nberwo:14553
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