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The effect of market access on the labor market: Evidence from German reunification

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Abstract

The New Economic Geography predicts a positive effect of market access on wages, as represented by the wage equation. Several studies provide empirical evidence in favor of the wage equation. However, a key problem is the endogeneity of market access: it is challenging to identify the causal effects of market access on wages, since market access itself depends on wages. Whereas most approaches rely on instrumental variables and strong assumptions on exogeneity, the present analysis relies on German reunification as an exogenous variation of market access in order to identify the effects. Since the market access shock due to reunification was accompanied by a labor supply shock due to migrants and commuters from eastern Germany, the effects on wages, employment and unemployment are analyzed. The results provide evidence in favor of a labor demand shock due to the increase in market access and a labor supply shock due to migrants and commuters from eastern Germany.

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  • Zierahn, Ulrich, 2012. "The effect of market access on the labor market: Evidence from German reunification," HWWI Research Papers 131, Hamburg Institute of International Economics (HWWI).
    • Handle: RePEc:zbw:hwwirp:131
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    2. Демидова Ольга Анатольевна & Иванов Денис Сергеевич, 2016. "Модели Экономического Роста С Неоднородными Пространственными Эффектами (На Примере Российских Регионов)," Higher School of Economics Economic Journal Экономический журнал Высшей школы экономики, CyberLeninka;Федеральное государственное автономное образовательное учреждение высшего образования «Национальный исследовательский университет «Высшая школа экономики», vol. 20(1), pages 52-75.
    3. Bräuninger, Michael, 2014. "Tax sovereignty and feasibility of international regulations for tobacco tax policies," HWWI Research Papers 152, Hamburg Institute of International Economics (HWWI).
    4. Julian S. Leppin & Stefan Reitz, 2016. "The Role of a Changing Market Environment for Credit Default Swap Pricing," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 21(3), pages 209-223, July.
    5. Vöpel, Henning, 2013. "A Zidane clustering theorem: Why top players tend to play in one team and how the competitive balance can be restored," HWWI Research Papers 141, Hamburg Institute of International Economics (HWWI).
    6. Vermeulen, Wessel N., 2022. "Stuck outside the single market; Evidence from firms in central and eastern Europe," Journal of Comparative Economics, Elsevier, vol. 50(2), pages 415-434.

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    More about this item

    Keywords

    New Economic Geography; wage equation; market access; natural experiment; differences-in-differences;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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