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The Eastern German Labor Market in Transition: Gross Flow Estimates from Panel Data


  • Bellmann Lutz
  • Estrin Saul
  • Lehmann Hartmut
  • Wadsworth Jonathan


Following the unification of the two Germanies in October 1990, the former German Democratic Republic was subject to a series of economic shocks, resulting in large declines in output and employment. This paper investigates the behaviour of the East German labour market during the initial stages of the transition to a market economy, using information contained in a unique longitudinal survey of GDR residents taken between November 1990 and November 1991. This study utilises Markovian flow analysis of worker transitions between labour market states. The results demonstrate that the sharp increase in the stock of unemployment is mainly due to large inflows from employment into the state. Flows out of unemployment however, have risen steadily throughout the same period. Inter-industry flows have also increased, primarily into the emerging finance and service sectors. Steady state predictions suggest that the eastern labour market will undergo substantial contraction before stabilizing. Job creation will be dominated by the emerging service sector. Multinominal logistic estimates indicate that, as in western economies, older workers are most at risk of loss of employment and labour force exit. Newly privatised firms are shedding male labour at a faster rate. The result suggest that standard methodologies can have a useful role in the analysis of economies in transition.
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  • Bellmann Lutz & Estrin Saul & Lehmann Hartmut & Wadsworth Jonathan, 1995. "The Eastern German Labor Market in Transition: Gross Flow Estimates from Panel Data," Journal of Comparative Economics, Elsevier, vol. 20(2), pages 139-170, April.
  • Handle: RePEc:eee:jcecon:v:20:y:1995:i:2:p:139-170

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    References listed on IDEAS

    1. Catte, Pietro & Mastropasqua, Cristina, 1993. "Financial structure and reforms in Central and Eastern Europe in the 1980s," Journal of Banking & Finance, Elsevier, vol. 17(5), pages 785-817, September.
    2. Sabi, Manijeh, 1996. "Comparative Analysis of Foreign and Domestic Bank Operations in Hungary," Journal of Comparative Economics, Elsevier, vol. 22(2), pages 179-188, April.
    3. Rajan, Raghuram G & Zingales, Luigi, 1995. " What Do We Know about Capital Structure? Some Evidence from International Data," Journal of Finance, American Finance Association, vol. 50(5), pages 1421-1460, December.
    4. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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