Intra-German migration is a closely monitored aspect of European integration for both academic and policy reasons. With common cultural ties, institutions and language, it forms an upper bound to labour mobility between Eastern Europe's transforming economies and the West. Neoclassical theory predicts that this should enforce rapid wage convergence across the two regions, which has not occurred, while migration has at the same time fallen to some 2-3,000 per month. In Discussion Paper No. 764, Research Fellow Michael Burda attributes this to the significant one-off costs of migration.

Migrants expect a higher income, but migration extinguishes the opportunity to exercise this option at a later date or take advantage of better future conditions at home. The `option value' of waiting depends on the wage convergence rate, the variance of the underlying uncertainty, the fixed costs of moving and the discount rate. Rather than estimating this directly, Burda examines correlates of migration proclivities in the German Socioeconomic Panel, a representative sample of East German households who were asked a series of questions concerning migration intentions in 1991. Roughly 35% then contemplated migration, but only 3% entertained the option `enthusiastically'. Logit analysis reveals that age, rent levels, having friends and relatives in the West and urban characteristics were all significant, but education, home region and levels and growth rates of wages had little explanatory power.

Burda then outlines the implications of these results for regional evolution and policy. Migrants are young people and the most likely to invest in human capital, whose loss will reduce productivity and convergence and maybe even returns on physical investment. Eastern Germany will also be less self-sufficient if pensions and other transfers rise faster than its average productivity. The rent increases currently under way in the East also risk a new migration surge, entailing significant externalities, so keeping rents low or subsidizing housing renovation directly might be a good second- or third-best. Migration also affects urban areas differentially: villages and larger cities seem to bind their inhabitants more strongly than medium-sized cities, which are often dominated by a single firm or industry.

The Determinants of East-West German Migration: Some First Results
Michael C Burda

Discussion Paper No. 764, January 1993 (HR)