The Invisible Border between East and West Germany

Sebastian Heise and Tommaso Porzio
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Tommaso Porzio: University of California, San Diego

No 605, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: More than 25 years after the fall of the Iron Curtain created a unified Germany, the country still seems like two distinct nations in many aspects. We show that average wage in West Germany is, in real terms and controlling for individual characteristics, 20% larger than in East. What prevents workers from taking advantage of this wage difference? In this paper, we leverage rich matched employer-employee data together with a new theoretical framework to study workers' mobility across establishments and unemployment, both within and across East and West Germany, to uncover the drivers behind the “invisible border”. We show that the East-West wage gap is sustained by a strong regional identity of workers.

Date: 2018
New Economics Papers: this item is included in nep-eur and nep-ure
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Citations: View citations in EconPapers (4)

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