Productivity: East-West Gap Replaced by Urban-Rural Gap

In 1991, the average labor productivity of the then-new federal states (plus West Berlin) only reached nearly half of the total national productivity level. Since then, the average labor productivity of these states has climbed up to nearly 90 percent. However, the ranking of the individual states has barely changed: Hamburg and the southern German states are still at the top, while most eastern German states remain at the bottom. Differences in urban structure are a decisive reason for this gap. Due to the advantages of spatial agglomeration, densely populated urban regions—which are typically found in the west—have higher productivity levels compared to rural regions in the east. Such differences in productivity have increased significantly over the past ten years. However, eastern German regions frequently score even better than their counterparts in the west within the same type of settlement structures. To prevent the productivity gap from growing larger, policymakers should strengthen the independent economic capacity of the regions that have fallen behind in both the east and west.