The Slow Decline of East Germany
Harald Uhlig (huhlig@uchicago.edu)
No 14553, NBER Working Papers from National Bureau of Economic Research, Inc
Abstract:
Fifteen years after German reunification, the facts about slow regional convergence have born out the prediction of Barro (1991), except that migration out of East Germany has not slowed down. I document that in particular the 18-29 year old are leaving East Germany, and that the emigration has accelerated in recent years. I document that low wages, high unemployment and increasing reliance on social security persist across wide regions of East Germany together with these migration patterns. To understand these patterns, I use an extension of the standard labor search model introduced in Uhlig (2006, 2008) by allowing for migration and network externalities. In that theory, two equilibria can result: one with a high networking rate, high average labor productivity, low unemployment and no emigration ("West Germany'') and one with a low networking rate, low average labor productivity, high unemployment and a constant rate of emigration ("East Germany''). The model does not imply any obviously sound policies to move from the weakly networked equilibrium to the highly networked equilibrium.
JEL-codes: E20 J61 J64 O11 O18 O33 P20 P25 R12 R23 (search for similar items in EconPapers)
Date: 2008-12
New Economics Papers: this item is included in nep-eec, nep-geo, nep-lab and nep-mig
Note: EFG ITI LS
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Citations: View citations in EconPapers (42)
Published as Uhlig, Harald, 2008. "The slow decline of East Germany," Journal of Comparative Economics, Elsevier, vol. 36(4), pages 517-541, December.
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