Explaining the Low Labor Productivity in East Germany. A Spatial Analysis


  • Rima
  • I.
  • Fuchs-Schündeln
  • N.

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.


JEL Classification
C15, J24, J61