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A Comparative Analysis of East and West German Labor Markets: Before and After Unification

In: Differences and Changes in Wage Structures

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  • Alan B. Krueger
  • Jorn-Steffen Pischke

Abstract

This paper uses micro data to analyze the wage structures in East Germany and West Germany before and after unification. In 1988, the wage distribution in East Germany was much more compressed than in West Germany or in the U.S. Since the collapse of Communism and unification with West Germany, however, the wage structure in eastern Germany has changed considerably. In particular, wage variation has increased, the payoff to education has decreased slightly, industry differentials have expanded, and the white collar premium has increased. Although average wage growth has been remarkably high in eastern Germany, individual variation in wage growth is similar to typical western levels. The wage structure of east Germans who work in west Germany resembles the wage structure of native west Germans in some respects, but the experience-earnings profile is flat.
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Suggested Citation

  • Alan B. Krueger & Jorn-Steffen Pischke, 1995. "A Comparative Analysis of East and West German Labor Markets: Before and After Unification," NBER Chapters,in: Differences and Changes in Wage Structures, pages 405-446 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:7864
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    References listed on IDEAS

    as
    1. Michael C. Burda & Jeffrey D. Sachs, 1988. "Assessing High Unemployment in West Germany," The World Economy, Wiley Blackwell, vol. 11(4), pages 543-563, December.
    2. George A. Akerlof & Andrew K. Rose & Janet L. Yellen & Helga Hessenius, 1991. "East Germany in from the Cold: The Economic Aftermath of Currency Union," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 1-106.
    3. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters,in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
    4. Katharine G. Abraham & Susan Houseman, 1995. "Earnings Inequality in Germany," NBER Chapters,in: Differences and Changes in Wage Structures, pages 371-404 National Bureau of Economic Research, Inc.
    5. Bergson, Abram, 1984. "Income Inequality under Soviet Socialism," Journal of Economic Literature, American Economic Association, vol. 22(3), pages 1052-1099, September.
    6. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1.
    7. Jean Helwege & Joachim Wagner, 1991. "More on the international similarity of interindustry wage differentials: evidence from the Federal Republic of Germany and the U.S," Finance and Economics Discussion Series 167, Board of Governors of the Federal Reserve System (U.S.).
    8. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, vol. 57(2), pages 411-445, March.
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    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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