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Minimum Wages and Employment: The Case of German Unification

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  • Heitger, Bernhard

Abstract

Analysis in terms of the two-sector open economy shows that in bringing the market economy to East Germany, West Germany seems to have disregarded important fundamentals. Premature formation of a currency union led to a substantial real appreciation of the East German currency. Premature implementation of the West German system of wage bargaining resulted in inappropriate minimum wage schedules. Both measures made East German production possibilities and employment decline.

Suggested Citation

  • Heitger, Bernhard, 2001. "Minimum Wages and Employment: The Case of German Unification," Kiel Working Papers 1045, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1045
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    References listed on IDEAS

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    1. Dornbusch, Rudiger, 1993. "The End of the German Miracle," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 881-885, June.
    2. 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.
    3. Richard A. Brecher, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 88(1), pages 98-116.
    4. John Kennan, 1995. "The Elusive Effects of Minimum Wages," Journal of Economic Literature, American Economic Association, vol. 33(4), pages 1950-1965, December.
    5. Marcus Noland, 1996. "German Lessons for Korea: The Economics of Unification," Working Paper Series WP96-3, Peterson Institute for International Economics.
    6. Bruno, Michael, 1976. "The Two-Sector Open Economy and the Real Exchange Rate," American Economic Review, American Economic Association, vol. 66(4), pages 566-577, September.
    7. 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.
    8. W. E. G. Salter, 1959. "Internal And External Balance: The Role Op Price And Expenditure Effects," The Economic Record, The Economic Society of Australia, vol. 35(71), pages 226-238, August.
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    Cited by:

    1. Snower, Dennis J. & Merkl, Christian, 2006. "The Caring Hand that Cripples: The East German Labor Market After Reunification (Detailed Version)," IZA Discussion Papers 2066, Institute of Labor Economics (IZA).
    2. Peter Huber & Herbert Brücker & Janos Köllö & Iulia Traistaru & Tomasz Mickiewicz, 2002. "Regional and Labour Market Development in Candidate Countries. A Literature Survey," WIFO Studies, WIFO, number 23340, April.

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    More about this item

    Keywords

    Minimum Wages; Employment; German Unification;
    All these keywords.

    JEL classification:

    • P23 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Factor and Product Markets; Industry Studies; Population
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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