TY  - JOUR
AU  - Uhlig,Harald
TI  - The Slow Decline of East Germany
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14553
PY  - 2008
Y2  - December 2008
UR  - http://www.nber.org/papers/w14553
L1  - http://www.nber.org/papers/w14553.pdf
N1  - Author contact info:
Harald Uhlig
Dept. of Economics
University of Chicago
1126 E 59th Street
Chicago, IL 60637
Tel: 773/702-3702
Fax: 773/702-8490
E-Mail: huhlig@uchicago.edu
AB  - Fifteen years after German reunification, the facts about slow regional convergence have born out the prediction of Barro (1991), except that migration out of East Germany has not slowed down.  I document that in particular the 18-29 year old are leaving East Germany, and that the emigration has accelerated in recent years. I document that low wages, high unemployment and increasing reliance on social security persist across wide regions of East Germany together with these migration patterns.  To understand these patterns, I use an extension of the standard labor search model introduced in Uhlig (2006, 2008) by allowing for migration and network externalities.  In that theory, two equilibria can result: one with a high networking rate, high average labor productivity, low unemployment and no emigration ("West Germany'') and one with a low networking rate, low average labor productivity, high unemployment and a constant rate of emigration ("East Germany'').  The model does not imply any obviously sound policies to move from the weakly networked equilibrium to the highly networked equilibrium.
ER  -