Discussion Paper Details

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Title: The Caring Hand that Cripples: The East German Labour Market after Reunification

Author(s): Christian Merkl and Dennis J. Snower

Publication Date: May 2006

Keyword(s): German unification, labour market traps and labour markets

Programme Area(s): Labour Economics

Abstract: The East German labor market has hardly made any progress since German reunification, despite massive migration flows and support from the West. We argue that East Germany is in trouble precisely because of the support it has received. This paper explores the phenomenon of 'the caring hand that cripples,' arising from bargaining by proxy, the adoption of the West German welfare system and the associated employment persistence. Even the steady decrease of labour cost (normalized by productivity) since the beginning of the 1990s did not help to kick start the East. We suggest that labor force participants fell into 'traps,' concerning low skills, ageing of the workforce, labour-saving capital and skills, capital underutilization, and unemployment arising from the decline of the tradeable sector.

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Bibliographic Reference

Merkl, C and Snower, D. 2006. 'The Caring Hand that Cripples: The East German Labour Market after Reunification'. London, Centre for Economic Policy Research.