This paper presents a spatial analysis of unemployment rates in Germany. The goal of this
analysis is to explain the stubbornly low labor productivity and high unemployment rates in
Eastern Germany. We build a model of commuting to distinguish between worker and job
characteristics as the main causes of the low labor productivity, and use the method of
simulated moments to estimate the East-West ratios of worker and job characteristics. The
“slope” of the unemployment rate across the former East-West border serves as the main
identification of the model. The preliminary results suggest that East and West German skills
are very similar, while job characteristics differ significantly between East and West.