Productivity Growth
German comparisons

Since German reunification in 1990, various studies of the transition in the `new' Eastern Länder have reported productivity levels of some 25-35% of those in the West, but it is not clear whether these have fallen during the transition or whether earlier estimates at some 40-60% of Western levels were always too high. In Discussion Paper No. 895, Nienke Beintema and Bart van Ark estimate relative productivity levels by comparing value added and labour inputs by manufacturing industry. Converting Eastern output at purchasing power parities that take account of relative prices for individual industries, they estimate that Eastern value added in total manufacturing was only 28.6% of the Western level in 1987. While these estimates may make inadequate allowance for quality differences, the main difference from those reported in earlier studies is that they take account of the greater quantity of intermediate inputs per unit of output in the GDR, which appears to have been a major source of inefficiency. Comparative productivity also differed significantly across sectors: Eastern productivity in food, beverages and leather products was above 50% of the Western level, while the equivalent figure for machinery and transport equipment was just over 20%.

Beintema and van Ark then discuss changes in the two countries' comparative productivity over the whole period of central planning. Comparing bench-marks reveals a decisive decline in the comparative productivity performance of the East. Official figures on the growth of its material product in manufacturing were systematically too high. Even after adjusting the GDR's time-series on real output in manufacturing to a Western factor cost standard, its comparative productivity in 1950 extrapolated back from 1987 appears unrealistically low relative to earlier bench-marks. The authors call for further research into the two Germanies' comparative productivity performance to shed light on the widening of this productivity gap, which may also yield insights into the nature and speed of the future integration of the two German regions and Eastern and Western Europe as a whole.

Comparative Productivity in East and West German Manufacturing Before Reunification
Nienke Beintema and Bart van Ark

Discussion Paper No. 895, February 1994 (HR)