JBNST - Vol. 236/2 - 2016

Comparing aggregate statistics and surveying selected empirical studies, this paper shows that the characteristics and results of labour markets in eastern and western Germany have become quite similar in some respects but still differ markedly in others even 25 years after unification. Whereas no substantial differences can be detected in firms’ labour demand decisions and in employees’ representation via works councils or trade unions, both parts of the country are somewhat apart concerning labour supply behaviour, labour productivity, wages, and bargaining coverage, and they still exhibit substantially different rates of unemployment. These differences may reflect observable and unobservable characteristics of economic actors as well as differences in behaviour, norms, and individuals’ attitudes.

This article shows how the impulses of the transformation process in eastern Germany have spread through the economy and the labour market. The form of transformation has long-term effects on the form of control over the economy; it is managed largely from western firms. This fact has manifold consequences for the innovation behaviour of plants, among others, which in turn is further related to productivity and thus to the labour market. We argue that this transfers further to persistently lower wages and higher unemployment rates in eastern compared with western Germany.

The authors update previous findings on the total East-West gap in overall life satisfaction and its trend by using data from the German Socio-Economic Panel (SOEP) for the years 1992 to 2013. Additionally, the East-West gap and its trend are separately analyzed for men and women as well as for four birth cohorts. The results indicate that reported life satisfaction is on average significantly lower in East than in West German federal states and that part of the raw East-West gap is due to differences in household income and unemployment status. The conditional East-West gap decreased in the first years after the German reunification and remained quite stable and sizeable since the mid-nineties. The results further indicate that gender differences are small. But the East-West gap is significantly smaller and shows a trend towards convergence for younger birth cohorts.

Our study provides evidence for firms’ evaluation of location quality. We use a 2004 survey of 6,000 East German firms that contained questions on the importance and assessment of 15 different location factors ranging from closeness to customers and suppliers, transport infrastructure, and proximity to research institutions and universities, as well as questions about the local financial institutions and region’s “image”. The results show (1) a great deal of heterogeneity in terms of which firm- or regional-level characteristics are important in the evaluation of a specific location factor, (2) that the model’s explanatory power is, overall, low and thus neither location characteristics nor internal factors are fully reflected in the perceptions of location quality, (3) that a firm’s business situation and whether a location factor is considered important have explanatory power for perception. One policy-relevant conclusion that we derive from these findings is that location policy should consider firms’ perception of a specific location in addition to improving the actual attributes of that location.

This study investigates the impact of public funding on the performance of establishments in Eastern Germany. Using data from the German Institute for Employment Research (IAB) Establishment Panel from 1996 through 2012, the effect of economic promotion in the eastern part of Germany is studied on a number of indicators that provide insight into the topic. For this purpose, conditional difference-in-differences estimators were derived using a propensity score matching approach. Treated establishments in the area of the former German Democratic Republic (GDR) invested more, had a higher value added and requested more labour than untreated firms when the amount of public funding is considered. However, on average, establishments with a history of previous investments also receive more funding than establishments that do not receive promotion. Also, some of the results are not permanent, such as the share of investment. Other effects of economic promotion in Germany include increases in wages, but these effects are rather small when compared to the size of the economic promotion. In addition, outcome for firms’ productivity is always insignificant and close to zero.

This paper uses a new tailor-made data set to investigate the differences in extensive and intensive margins of exports in manufacturing firms from East Germany and West Germany. It documents that these margins do still differ in 2010, 20 years after the re-unification of Germany. West German firms outperform East German firms at all four margins of exports – they have a larger propensity to export, export a larger share of total sales, export more goods and export to a larger number of countries. All these differences are large from an economic point of view. A decomposition analysis shows that in 2010 between 59 percent and 78 percent of the difference in margins can be explained by differences in firm characteristics.