Kiel Working Papers, Kiel Institute for World Economics
No 1309:
Escaping the Unemployment Trap ; The Case of East Germany
Christian Merkl and Dennis J. Snower
Abstract: This paper addresses the question of why prolonged
regional unemployment differentials tend to persist even after their
proximate causes have been reversed (e.g., after wages in the
high-unemployment regions have fallen relative to those in the
low-unemployment regions). We suggest that the longer people are
unemployed, the greater is the likelihood of falling into a
low-productivity "trap," through the attrition of skills and work habits.
We develop and calibrate a model along these lines for East Germany and
examine the effectiveness of three employment policies in this context: (i)
a weakening of workers’ position in wage negotiations due to a drop in the
replacement rate or firing costs, leading to a fall in wages, (ii) hiring
subsidies, and (iii) training subsidies. We show that the employment
effects of these policies depend crucially on whether low-productivity
traps are present.
Keywords: labor markets; labor market traps; calibration; East Germany; (follow links to similar papers)
JEL-Codes: E24,; J30,; J31,; J64; (follow links to similar papers)
27 pages, January 2007
Before downloading any of the electronic versions below
you should read our statement on
copyright.
Download GhostScript
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Downloadable files:
kap1309.pdf 
Download Statistics
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Programing by
Design Joakim Ekebom
