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East Germany In From the Cold: • The Economic Aftermath of Currency Union

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  • Akerlof, George

Abstract

Adjustments in the East German economy resulting from the currency union with West Germany are a source of continuing problems. Recommendations for policies to assist in the adjustment process are developed. Two new data sets are used. The first data set adjusts previously unpublished expense data of GDR conglomerates to estimate the consequences of the price-cost squeeze in the goods market, and finds that firms employing only 8% of the labor force were viable after the currency union. The second data set is a survey of GDR workers to determine their propensity to migrate and the factors which are likely to influence their decision, and discovers that while a wage differential between East and West Germany will not induce migration, higher unemployment in East Germany will cause workers to migrate. Examination of the privatization process, and concludes that the negative value of many firms is causing this process to move slowly. Two policies are proposed to deal with these problems: a rapid infrastructure investment program and a program of employment bonuses.

Suggested Citation

  • Akerlof, George, 1991. "East Germany In From the Cold: • The Economic Aftermath of Currency Union," Institute for Policy Reform Working Paper Series 294662, Institute for Policy Reform.
    • Handle: RePEc:ags:iprwps:294662
    DOI: 10.22004/ag.econ.294662
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    References listed on IDEAS

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    1. Burda, Michael C, 1990. "The Consequences of German Economic and Monetary Union," CEPR Discussion Papers 449, C.E.P.R. Discussion Papers.
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    Cited by:

    1. Tirole, Jean, 1991. "Ownership and Incentives In a Transition Economy," Institute for Policy Reform Archive 294679, Institute for Policy Reform.

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