Returns to Human Capital in Germany Post-Unification

Following German unification in 1990, a number of initial studies were conducted on the development of the returns to education in the eastern states of the former GDR. These studies reveal a general consensus of initial falls in the returns to education for the eastern states (Krueger and Pischke 1992, Bird, Schwarze and Wagner 1994) before beginning to raise towards western levels. This study examines the development of returns to human capital for the eastern states following unification. Data from the German Socio Economic Panel Study is used to compare the eastern and western returns to human capital during the transition years of 1989 until 1991, followed by a longitudinal analysis until 2007 investigating returns to schooling and work experience, differentiating between experience in the GDR and work experience obtained outside of the GDR. In addition to returns to years of schooling, returns to specific degrees are examined. Results show an initial decline in the returns to human capital for easterners, followed by a relatively steady incline. Returns to education for eastern women reached western levels soon after unification, but returns for eastern men took until 2005 to achieve the levels of western men. Comment by Wolfgang Scheremet.