IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/730.html
   My bibliography  Save this paper

Eastern Germany Since Unification: Wage Subsidies Remain a Better Way

Author

Listed:
  • Begg, David
  • Portes, Richard

Abstract

In Spring 1991, we argued that the centrepiece of German policy towards unification should be a universal, temporary wage subsidy in Eastern Germany and the elimination of all other subsidies. Subsequent events have strengthened the analytical case for and practical importance of this policy. This paper describes the performance of the Eastern German economy since unification, the reasons behind it, and the principal policy responses. It then identifies the specific market failures attributable to unification and shows that the various current policy interventions are poorly targeted. Finally, the paper sets out our proposal, explains why it minimizes distortions, and deals with common objections to a wage subsidy.

Suggested Citation

  • Begg, David & Portes, Richard, 1992. "Eastern Germany Since Unification: Wage Subsidies Remain a Better Way," CEPR Discussion Papers 730, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:730
    as

    Download full text from publisher

    File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=730
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or

    for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Franz, Wolfgang, 1991. "German labour markets after unification," Discussion Papers, Series II 162, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    2. Neumann, Manfred J.M., 1991. "German Unification: Economic Problems and Consequences," CEPR Discussion Papers 584, C.E.P.R. Discussion Papers.
    3. David Begg & Richard Portes, 1993. "Enterprise debt and economic transformation (Financial restructuring of the state sector in Central and Eastern Europe)," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 1(1), pages 116-117, January.
    4. Carlin, Wendy & Mayer, Colin, 1992. "Restructuring Enterprises in Eastern Europe," CEPR Discussion Papers 700, C.E.P.R. Discussion Papers.
    5. Burda, Michael C & Wyplosz, Charles, 1991. "Labour Mobility and German Integration: Some Vignettes," CEPR Discussion Papers 615, C.E.P.R. Discussion Papers.
    6. Siebert, Horst, 1991. "German unification: the economics of transition," Kiel Working Papers 468, Kiel Institute for the World Economy (IfW Kiel).
    7. Burda, Michael C & Funke, Michael, 1992. "Trade Unions, Wages and Structural Adjustment in the New German States," CEPR Discussion Papers 652, C.E.P.R. Discussion Papers.
    8. Dani Rodrik, 1994. "Foreign Trade in Eastern Europe's Transition: Early Results," NBER Chapters, in: The Transition in Eastern Europe, Volume 2, Restructuring, pages 319-356, National Bureau of Economic Research, Inc.
    9. Hans-Werner Sinn, 1991. "Macroeconomic Aspects of German Unification," NBER Working Papers 3596, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Manfred Keil & Andrew Newell, 1993. "Internal migration and unemployment in Germany: An anglo-irish perspective," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 129(3), pages 514-536, September.
    2. Schmieding, Holger & Buch, Claudia, 1992. "Better banks for Eastern Europe," Kiel Discussion Papers 197, Kiel Institute for the World Economy (IfW Kiel).
    3. Christian Weller, 2000. "Financial Liberalization, Multinational Banks and Credit Supply: The case of Poland," International Review of Applied Economics, Taylor & Francis Journals, vol. 14(2), pages 193-211.
    4. Yanhua ZHANG, 2005. "Collusion and Commitment in Bank Bailout," Industrial Organization 0509011, University Library of Munich, Germany.
    5. Wyplosz, Charles, 2000. "Ten years of transformation - macroeconomic lessons," Policy Research Working Paper Series 2288, The World Bank.
    6. Gerard Rpland, 2001. "The Political Economy of Transition," William Davidson Institute Working Papers Series 413, William Davidson Institute at the University of Michigan.
    7. Andrea Boltho & Wendy Carlin & Pasquale Scaramozzino, 1999. "Will East Germany become a new Mezzogiorno?," Chapters, in: John Adams & Francesco Pigliaru (ed.), Economic Growth and Change, chapter 13, Edward Elgar Publishing.
    8. Luoana D. Santarossa, 2001. "Arrears as a Sign of Financial Repression in Transition Economies - The Case of Romania," CERT Discussion Papers 0104, Centre for Economic Reform and Transformation, Heriot Watt University.
    9. Rudiger Dornbusch & Holger C. Wolf, 1994. "East German Economic Reconstruction," NBER Chapters, in: The Transition in Eastern Europe, Volume 1, Country Studies, pages 155-190, National Bureau of Economic Research, Inc.
    10. Horst Siebert, 1993. "Internationale Wanderungsbewegungen - Erklärungsansätze und Gestaltungsfragen," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 129(III), pages 229-255, September.
    11. Franz, Wolfgang, 1991. "Im Jahr danach: Bestandsaufnahme und Analyse der Arbeitsmarktentwicklung in Ostdeutschland," Discussion Papers, Series II 159, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    12. Antje Hildebrandt, 2002. "Too many to fail? Inter-enterprise arrears in transition economies," Development and Comp Systems 0212001, University Library of Munich, Germany.
    13. Buch, Claudia M., 1993. "An institutional approach to banking reform in Eastern Europe," Kiel Working Papers 560, Kiel Institute for the World Economy (IfW Kiel).
    14. Büttner, Thiess, 1994. "The new Laender as an industry location in unified Germany," Discussion Papers 16, University of Konstanz, Center for International Labor Economics (CILE).
    15. Sascha O. Becker & Lukas Mergele & Ludger Woessmann, 2020. "The Separation and Reunification of Germany: Rethinking a Natural Experiment Interpretation of the Enduring Effects of Communism," Journal of Economic Perspectives, American Economic Association, vol. 34(2), pages 143-171, Spring.
    16. Agnès Bénassy-Quéré & Pierre Villa, 1994. "La réunification allemande du point de vue de la politique économique," Working Papers 1994-09, CEPII research center.
    17. Swati Basu & Saul Estrin & Jan Svejnar, 2005. "Employment Determination in Enterprises under Communism and in Transition: Evidence from Central Europe," ILR Review, Cornell University, ILR School, vol. 58(3), pages 353-369, April.
    18. Akcigit, Ufuk & Alp, Harun & Diegmann, André & Serrano-Velarde, Nicolas, 2025. "Committing to grow: Employment targets and firm dynamics," IWH Discussion Papers 17/2023, Halle Institute for Economic Research (IWH), revised 2025.
    19. Sinn, Hans-Werner, 1992. "Privatization in East Germany," Public Finance = Finances publiques, , vol. 47(Supplemen), pages 152-171.
    20. Martin Raiser, 1993. "Old habits die hard," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 28(4), pages 170-177, July.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:730. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.