East German unemployment: the myth of the irrelevant labor market

Christian Merkl and Dennis J. Snower

No 1435, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: This paper indicates that East Germany's unemployment originates primarily in the labor market, caused by the fast wage adjustment after German reunification. We model the resulting labor market traps in a search and matching framework, show that they are difficult to overcome, and provide empirical evidence. We argue that under these circumstances, demand-side policies are effective mainly when they increase the economy's overall productivity and thereby help overcome the labor market traps.

Keywords: Unemployment; labor market trap; East Germany (search for similar items in EconPapers)
JEL-codes: E24 J30 J64 P2 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1435

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