Working Paper: NBER ID: w14553
Authors: Harald Uhlig
Abstract: 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.
Keywords: German reunification; labor market; search; network externalities; migration; regional economics
JEL Codes: E20; J61; J64; O11; O18; O33; P20; P25; R12; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| low wages (J31) | high unemployment (J64) |
| high unemployment (J64) | out-migration of the young population (J11) |
| low wages (J31) | out-migration of the young population (J11) |
| network externalities (D85) | lower productivity (O49) |
| lower productivity (O49) | high unemployment (J64) |
| network externalities (D85) | high unemployment (J64) |