Working Paper

Regional Labor Markets, Network Externalities and Migration: The Case of German Reunification

Author

  • Harald Uhlig
Publication Date

Fifteen years after German reunification, the facts about slow regional convergence have born

out the prediction of Barro (1991), except that migration out of East Germany has not slowed

down. I document that in particular the 18-29 year old are leaving East Germany, and that the

emigration has accelerated in recent years. To understand these patterns, I provide an

extension of the standard labor search model by allowing for migration and network

externalities. In that theory, two equilibria can result: one with a high networking rate, high

average labor productivity, low unemployment and no emigration (“West Germany”) and one

with a low networking rate, low average labor productivity, high unemployment and a

constant rate of emigration (“East Germany”). The model does not imply any obviously sound

policies to move from the weakly networked equilibrium to the highly networked equilibrium.

Info

JEL Classification
J21, J24, J61, J64, J11, E24

Key Words

  • German reunification
  • Labor Market Search
  • migration
  • network externalities
  • regional economics
  • regionale Analyse