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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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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. Burda, Michael C. & Härdle, Wolfgang & Müller, Marlene & Werwatz, Axel, 1997. "Semiparametric analysis of German East-West migration intentions: Facts and theory," SFB 373 Discussion Papers 1998,3, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
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  3. Yu-Fu Chen & Michael Funke, 2003. "Labour Demand in Germany: An Assessment of Non- Wage Labour Costs," Dundee Discussion Papers in Economics 154, Economic Studies, University of Dundee.
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  8. 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.
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  11. Dennis J. Snower & David T. Coe, 1996. "Policy Complementarities: The Case for Fundamental Labor Market Reform," IMF Working Papers 96/93, International Monetary Fund.
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  14. Harald Lehmann & Udo Ludwig & Joachim Ragnitz, 2005. "Originäre Wirtschaftskraft der neuen Länder noch schwächer als bislang angenommen," Wirtschaft im Wandel, Halle Institute for Economic Research, vol. 11(5), pages 134-145.
  15. Burda, Michael C., 1993. "The determinants of East-West German migration: Some first results," European Economic Review, Elsevier, vol. 37(2-3), pages 452-461, April.
  16. Michael Funke & Felix FitzRoy, 1995. "Skills, Wages, and Employment in East and West Germany," IMF Working Papers 95/4, International Monetary Fund.
  17. Fuchs, Johann & Weber, Brigitte, 2005. "Neuschätzung der Stillen Reserve und des Erwerbspersonenpotenzials für Ostdeutschland (einschl. Berlin-Ost)," IAB-Forschungsbericht 200518, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
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  20. Falk, Martin & Koebel, Bertrand M., 2000. "A dynamic heterogeneous labour demand model for German manufacturing," ZEW Discussion Papers 00-16, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  21. Michael C. Burda & Jennifer Hunt, 2001. "From Reunification to Economic Integration: Productivity and the Labor Market in Eastern Germany," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(2), pages 1-92.
  22. 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).
  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. Joachim Ragnitz, 2004. "Transferleistungen für die neuen Länder – eine Begriffsbestimmung," Wirtschaft im Wandel, Halle Institute for Economic Research, vol. 10(9-10), pages 288-289.
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