Catching-up of East German Labour Productivity in the 1990s

Ray Barrell 1  and Dirk Willem te Velde 1
  • 1 National Institute of Economic and Social Research,, London, United Kingdom of Great Britain and Northern Ireland

Abstract

We provide empirical evidence for exogenous and endogenous catching-up of East German labour productivity to West German levels. We argue that labour productivity in East Germany has caught up faster than has happened elsewhere. The sudden formation of the German Monetary Union was followed by large transfers to East Germany, migration of workers to West Germany, reorganization and privatization of East German firms. This has quickly led to a partial closing of the organizational, idea and object gaps that existed between East and West Germany. This paper analyses labour productivity in East and West Germany using both aggregate German data and unbalanced panel analysis of developments in East and West Germany. Factors affecting the organization of production, and especially privatization and `foreign' firms, are found to be particularly important in this context.

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