The Collapse and Recovery of the Capital Share in East Germany After 1989

Simona Cociuba ()

No 20185, University of Western Ontario, Departmental Research Report Series from University of Western Ontario, Department of Economics

Abstract: After the 1990 unification, East Germany’s capital income share plunged to 15.2 percent in 1991, then increased to 37.4 percent by 2015. To account for these large changes in the capital share, I model an economy that gains access to a higher productivity technology embodied in new plants. As existing low productivity plants decrease production, the capital share varies due to the non-convex production technology: plants require a minimum amount of labor to produce output. Two policies— transfers and government-mandated wage increases—have opposite effects on output growth, but contribute to lowering the capital share early in the transition.

Keywords: technological change; capital share; labor share; transfers; union markups (search for similar items in EconPapers)
JEL-codes: E20 E25 O11 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-his, nep-mac and nep-tra
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Journal Article: THE COLLAPSE AND RECOVERY OF THE CAPITAL SHARE IN EAST GERMANY AFTER 1989 (2019)
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