Kiel Working Papers, Kiel Institute for World Economics
No 1435:
East German Unemployment: The Myth of the Irrelevant Labor Market
Christian Merkl and Dennis Snower
Abstract: This paper indicates that East Germany’s unemployment
originates primarily in the labor market, caused by the fast wage
adjustment after German reunification. We model the resulting labor market
traps in a search and matching framework, show that they are difficult to
overcome, and provide empirical evidence. We argue that under these
circumstances, demand-side policies are effective mainly when they increase
the economy’s overall productivity and thereby help overcome the labor
market traps
Keywords: unemployment, labor market trap, East Germany; (follow links to similar papers)
JEL-Codes: E24,; J30,; J64,; P20; (follow links to similar papers)
20 pages, July 2008
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