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The Caring Hand that Cripples: The East German Labor Market After Reunification (Detailed Version)

  • Dennis J. Snower
  • Christian Merkl

The East German labor market has hardly made any progress since German reunification, despite massive migration flows and support from the West. We argue that East Germany is in trouble precisely because of the support it has received. This paper explores the phenomenon of "the caring hand that cripples," arising from bargaining by proxy, the adoption of the West German welfare system and the associated employment persistence. Even the steady decrease of labor cost (normalized by productivity) since the beginning of the nineties did not help to kick start the East. We suggest that labor force participants fell into "traps," concerning low skills, ageing of the workforce, labor-saving capital and skills, capital underutilization, and unemployment arising from the decline of the tradeable sector.

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File URL: https://www.ifw-members.ifw-kiel.de/publications/the-caring-hand-that-cripples-the-east-german-labor-market-after-reunification-detailed-version/kap1263.pdf
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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1263.

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Length: 42 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:kie:kieliw:1263
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  1. Schnabel, Claus, 2005. "Gewerkschaften und Arbeitgeberverbände: Organisationsgrade, Tarifbindung und Einflüsse auf Löhne und Beschäftigung," Discussion Papers 34, Friedrich-Alexander University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
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  14. repec:zbw:iwhwiw:5-05-3 is not listed on IDEAS
  15. Burda, Michael C & Funke, Michael, 1991. "German Trade Unions After Unification: Third Degree Wage Discriminating Monopolists?," CEPR Discussion Papers 573, C.E.P.R. Discussion Papers.
  16. Burda, Michael C, 1993. "The Determinants of East-West German Migration: Some First Results," CEPR Discussion Papers 764, C.E.P.R. Discussion Papers.
  17. Michael C. Burda & Wolfgang Härdle & Marlene Müller & Axel Werwatz, 1998. "Semiparametric analysis of German East-West migration intentions: facts and theory," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(5), pages 525-541.
  18. Riphahn, Regina T. & Thalmaier, Anja & Zimmermann, Klaus F., 1999. "Report No. 2: Schaffung von Arbeitsplätzen für Geringqualifizierte," IZA Research Reports 2, Institute for the Study of Labor (IZA).
  19. Bernhard Heitger, 2001. "Minimum Wages And Employment: The Case Of German Unification," International Economic Journal, Taylor & Francis Journals, vol. 17(1), pages 1-15.
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  23. Schroeder, Wolfgang, 2000. "Industrielle Beziehungen in Ostdeutschland: Zwischen Eigensinn und Paternalismus," Discussion Papers, Research Unit: Institutions and Social Change FS III 00-203, Social Science Research Center Berlin (WZB).
  24. Heitger, Bernhard, 2001. "Minimum Wages and Employment: The Case of German Unification," Kiel Working Papers 1045, Kiel Institute for the World Economy (IfW).
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  26. Hans-Werner Sinn, 1995. "Staggering along: wages policy and investment support in East Germany," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(4), pages 403-426, December.
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