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Wage Effects of the Move toward Free Markets in East Germany

Author

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  • Edward J. Bird
  • Johannes Schwarze
  • Gert G. Wagner

Abstract

This analysis of data from the German Socio-Economic Panel (SOEP) for the years 1989–91 illuminates important changes in the structure of wages that were occurring in the former East Germany during its transition toward a capitalist economy—and changes that are probably occurring in other countries in Eastern Europe as well. Under the new capitalist wage regime, workers realized significant returns to schooling gained under socialism, but no significant returns to work experience. Because work experience is the largest element in the human capital of older workers, their wages fell under the new system; and the results suggest that their wages will continue to fall relative to those of younger workers. Generous transfer payments from western Germany may prevent an absolute decline in living standards of these workers. Older workers in other eastern countries, however, will have no such social assistance, and their living standards will probably fall.

Suggested Citation

  • Edward J. Bird & Johannes Schwarze & Gert G. Wagner, 1994. "Wage Effects of the Move toward Free Markets in East Germany," ILR Review, Cornell University, ILR School, vol. 47(3), pages 390-400, April.
  • Handle: RePEc:sae:ilrrev:v:47:y:1994:i:3:p:390-400
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    File URL: http://ilr.sagepub.com/content/47/3/390.abstract
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    Cited by:

    1. Robert Orlowski & Regina T. Riphahn, 2009. "The East German wage structure after transition," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(4), pages 629-659, October.
    2. Steiner, Viktor & Wagner, Kersten, 1997. "East West German wage convergence - How far have we got?," ZEW Discussion Papers 97-25, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Jennifer Hunt, 2001. "Post-Unification Wage Growth in East Germany," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 190-195, February.
    4. repec:spr:jlabrs:v:50:y:2017:i:1:d:10.1007_s12651-017-0219-3 is not listed on IDEAS
    5. Nauro F. Campos & Dean Jolliffe, 2002. "After, Before and During: Returns to Education in the Hungarian Transition," William Davidson Institute Working Papers Series 475, William Davidson Institute at the University of Michigan.
    6. Michael Wyrwich, 2014. "Ready, set, go! Why are some regions entrepreneurial jump starters?," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 53(2), pages 487-513, September.
    7. Viktor Steiner & Patrick A. Puhani, 1997. "Economic Restructuring, the Value of Human Capital, and the Distribution of Hourly Wages in Eastern Germany, 1990 to 1994," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 66(1), pages 197-204.
    8. Petrik Runst, 2013. "Post-Socialist Culture and Entrepreneurship," American Journal of Economics and Sociology, Wiley Blackwell, vol. 72(3), pages 593-626, July.
    9. Dimova, Ralitza & Gang, Ira N., 2007. "Self-selection and wages during volatile transition," Journal of Comparative Economics, Elsevier, vol. 35(3), pages 612-629, September.
    10. Ira N. Gang & Ralitza Dimova, 2004. "Self-Selection And Earnings During Volatile Transition," Departmental Working Papers 200409, Rutgers University, Department of Economics.
    11. Kevin Denny & Orla Doyle, 2010. "Returns to basic skills in central and eastern Europe," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 18(1), pages 183-208, January.
    12. Ira N. Gang & Robert C. Stuart & Myeong-Su Yun, 2006. "Wage Growth and Inequality Change During Rapid Economic Transition," Departmental Working Papers 200631, Rutgers University, Department of Economics.
    13. Steiner, Viktor & Bellmann, Lutz, 1994. "The East German wage structure in the transition to a market economy," ZEW Discussion Papers 94-17, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    14. Noorkoiv, Rivo & Orazem, Peter F. & Puur, Allan & Vodopivec, Milan, 1997. "How Estonia's economic transition affected employment and wages (1989-95)," Policy Research Working Paper Series 1837, The World Bank.
    15. repec:eee:labchp:v:3:y:1999:i:pb:p:2809-2857 is not listed on IDEAS
    16. Bird, Edward J. & Frick, Joachim R. & Wagner, Gert G., 1998. "The Income of Socialist Upper Classes during the Transition to Capitalism: Evidence from Longitudinal East German Data," Journal of Comparative Economics, Elsevier, vol. 26(2), pages 211-225, June.
    17. Nicole Gürtzgen & André Nolte, 2017. "Imputation rules for the implementation of the pre-unification education variable in the BASiD Data Set
      [Imputationsregeln für die Generierung der Bildungsvariable in den BASiD-Daten vor der Wieder
      ," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 50(1), pages 45-65, August.
    18. Jones, Derek C. & Ilayperuma Simon, Kosali, 2005. "Wage determination under plan and early transition: Bulgarian evidence using matched employer-employee data," Journal of Comparative Economics, Elsevier, vol. 33(2), pages 227-243, June.
    19. Jiri Balcar, 2013. "Soft Competencies in Bulgaria," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 2, pages 88-99, April.
    20. Michael Fritsch & Elisabeth Bublitz & Alina Sorgner & Michael Wyrwich, 2014. "How much of a socialist legacy? The re-emergence of entrepreneurship in the East German transformation to a market economy," Small Business Economics, Springer, vol. 43(2), pages 427-446, August.
    21. Svejnar, Jan, 1999. "Labor markets in the transitional Central and East European economies," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 42, pages 2809-2857 Elsevier.

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