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EU Enlargement : Challenges for Germany's New Laender


  • Fuchs, Michaela
  • Thum, Marcel


EU enlargement offers significant welfare gains to old and new member states. However, these welfare gains do not come automatically but have to be earned by appropriate adjustments in domestic policies. This is particularly relevant for Germany's New Laender, which could benefit from the proximity to the new EU member states in Central and Eastern Europe but which also suffer particularly from inefficient institutions in Germany. Welfare gains will only be realised if wage adjustment is flexible. Instead, the German welfare system implicitly creates downward rigid wages. Without appropriate social policy reforms, the competitive pressure and the mobility of capital will destroy jobs in the New Laender. The paper shows the potential benefits and risks of economic integration in a simple partial equilibrium setting with flexible and rigid labour markets, respectively. We also discuss the entrepreneurial willingness and ability in the New Laender to adjust to the changing competitive conditions after EU enlargement.

Suggested Citation

  • Fuchs, Michaela & Thum, Marcel, 2004. "EU Enlargement : Challenges for Germany's New Laender," Dresden Discussion Paper Series in Economics 07/04, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
  • Handle: RePEc:zbw:tuddps:0704

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    References listed on IDEAS

    1. Wolfgang Gerstenberger, 2004. "Auswirkungen der EU-Osterweiterung auf Wirtschaft und Arbeitsmarkt in Sachsen," ifo Dresden berichtet, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 11(01), pages 5-18, 02.
    2. Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, vol. 88(3), pages 478-494, June.
    3. Brecher, Richard A. & Feenstra, Robert C., 1983. "International trade and capital mobility between diversified economies," Journal of International Economics, Elsevier, vol. 14(3-4), pages 321-339, May.
    4. Richard A. Brecher, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 88(1), pages 98-116.
    5. Wolfgang Gerstenberger & Beate Henschel & Herbert Hofmann & Carsten Pohl & Heinz Schmalholz & Carola Boede & Michaela Fuchs & Martin Werding, 2004. "Auswirkungen der EU-Osterweiterung auf Wirtschaft und Arbeitsmarkt in Sachsen," ifo Dresden Studien, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 35, October.
    6. repec:ces:ifodre:v:11:y:2004:i:01:p:s.5-18 is not listed on IDEAS
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    More about this item


    EU enlargement; labour markets;

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • F2 - International Economics - - International Factor Movements and International Business


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