Faculty of Economics and Business Administration Publications Database

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

Izem, Rima
Volume: 40
Number: 1
Pages: 1 - 21
Month: February
ISSN-Print: 0147-5967
Link External Source: Online Version
Year: 2012
Keywords: Transferability of Human Capital; Spatial Allocation of Labor
Abstract: This paper sheds light on the transferability of human capital in periods of dramatic structural change by analyzing the unique event of German reunification. We explore whether the comparatively lowlaborproductivity in EastGermany after reunification is caused by the depreciation of human capital at reunification, or by unfavorable job characteristics. East German workers should have been hit harder by reunification the more specific human capital was. Treating both human capital and job characteristics as unobservables, we derive their relative importance in explaining the lowlaborproductivity by estimating aspatial structural model that predicts commuting behavior across the former East–West border and the resulting regional unemployment rates. The identification of the model is based on the slope of the unemployment rate across the former border. The results indicate that East and West German skills are very similar, while job characteristics differ significantly between East and West in the sample period 1998–2004. Hence, they suggest that a significant part of the human capital accumulated in the East before 1990 was transferable.