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Explaining the low labor productivity in East Germany – A spatial analysis

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  • Fuchs-Schündeln, Nicola
  • Izem, Rima

Abstract

This paper sheds light on the transferability of human capital in periods of dramatic structural change by analyzing the unique event of German reunification. We explore whether the comparatively low labor productivity in East Germany after reunification is caused by the depreciation of human capital at reunification, or by unfavorable job characteristics. East German workers should have been hit harder by reunification the more specific human capital was. Treating both human capital and job characteristics as unobservables, we derive their relative importance in explaining the low labor productivity by estimating a spatial structural model that predicts commuting behavior across the former East–West border and the resulting regional unemployment rates. The identification of the model is based on the slope of the unemployment rate across the former border. The results indicate that East and West German skills are very similar, while job characteristics differ significantly between East and West in the sample period 1998–2004. Hence, they suggest that a significant part of the human capital accumulated in the East before 1990 was transferable.

Suggested Citation

  • Fuchs-Schündeln, Nicola & Izem, Rima, 2012. "Explaining the low labor productivity in East Germany – A spatial analysis," Journal of Comparative Economics, Elsevier, vol. 40(1), pages 1-21.
  • Handle: RePEc:eee:jcecon:v:40:y:2012:i:1:p:1-21
    DOI: 10.1016/j.jce.2011.09.001
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    Cited by:

    1. Heineck, Guido & Süssmuth, Bernd, 2013. "A different look at Lenin’s legacy: Social capital and risk taking in the Two Germanies," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 789-803.
    2. Susanne Prantl & Alexandra Spitz-Oener, 2013. "Interacting Product and Labor Market Regulation and the Impact of Immigration on Native Wages," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2013_22, Max Planck Institute for Research on Collective Goods.
    3. Merkl, Christian & Snower, Dennis J., 2008. "Escaping the unemployment trap: The case of East Germany," Journal of Comparative Economics, Elsevier, vol. 36(4), pages 542-556, December.
    4. repec:eee:jcecon:v:46:y:2018:i:1:p:192-211 is not listed on IDEAS
    5. repec:kap:jculte:v:42:y:2018:i:3:d:10.1007_s10824-017-9310-4 is not listed on IDEAS
    6. Gürtzgen, Nicole & Hank, Karsten, 2015. "The labor market consequences of political imprisonment in the former GDR," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113134, Verein für Socialpolitik / German Economic Association.
    7. Alessandra Fogli & Laura Veldkamp, 2011. "Nature or Nurture? Learning and the Geography of Female Labor Force Participation," Econometrica, Econometric Society, vol. 79(4), pages 1103-1138, July.
    8. Burda, Michael C., 2008. "What kind of shock was it? Regional integration and structural change in Germany after unification," Journal of Comparative Economics, Elsevier, vol. 36(4), pages 557-567, December.
    9. Olga A. Demidova, 2014. "The asymmetric spatial effects for eastern and western regions of Russia," HSE Working papers WP BRP 50/EC/2014, National Research University Higher School of Economics.
    10. Burda, Michael C. & Severgnini, Battista, 2018. "Total factor productivity convergence in German states since reunification: Evidence and explanations," Journal of Comparative Economics, Elsevier, vol. 46(1), pages 192-211.
    11. Wolfgang Nagl & Michael Weber, 2014. "Unemployment compensation and unemployment duration before and after the German Hartz IV reform," ifo Working Paper Series 186, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    12. Kuehn, Zoe, 2012. "Migration, Wages, and Parental Background: Obstacles to Entrepreneurship and Growth in East Germany," MPRA Paper 49250, University Library of Munich, Germany.
    13. Demidova, Olga, 2014. "Spatial-autoregressive model for the two groups of related regions (eastern and western parts of Russia)," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 34(2), pages 19-35.
    14. Friehe, Tim & Mechtel, Mario, 2014. "Conspicuous consumption and political regimes: Evidence from East and West Germany," European Economic Review, Elsevier, vol. 67(C), pages 62-81.
    15. Findeisen, Sebastian & Dauth, Wolfgang & Lee, Tim, 2016. "Human Capital Accumulation over the Life-Cycle: Evidence from Germany’s Reunification," Annual Conference 2016 (Augsburg): Demographic Change 145887, Verein für Socialpolitik / German Economic Association.
    16. Bartz, Kevin & Fuchs-Schündeln, Nicola, 2012. "The role of borders, languages, and currencies as obstacles to labor market integration," European Economic Review, Elsevier, vol. 56(6), pages 1148-1163.
    17. Oliver Falck & Michael Fritsch & Stephan Heblich & Anne Otto, 2018. "Music in the air: estimating the social return to cultural amenities," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 42(3), pages 365-391, August.
    18. repec:zbw:ifwkwp:1309 is not listed on IDEAS

    More about this item

    Keywords

    Transferability of human capital; Spatial allocation of labor;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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