Journal Article

East German Unemployment: The Myth of the Irrelevant Labor Market


  • Merkl
  • C.
  • Snower
  • D.J.

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.

Experte IfW Kiel


JEL Classification
E24, J23, J31, P20