Explaining the East German Productivity Gap – The Role of Human Capital

The paper concentrates on the question whether the low level of productivity in East Germany

can be explained by deficits in the stock of human capital. It is shown that figures on “formal”

qualifications yield a too optimistic view on human capital endowments; in fact, the effective

stock on human capital in East Germany is lower than in West Germany when differences in

job activities are taken into account. One reason is the dominance of non human capitalintensive

industries as a consequence of locational decisions in the past. Another reason is a

low human capital intensity within the different branches which is a consequence of

specialization within affiliated firms. In the next years human capital endowment of the East

German economy will further deteriorate as a result of selective migration and unfavorable

educational attendance of the younger cohorts. This impedes a fast convergence in

productivity between East and West Germany.