From Reunification to Economic Integration: Productivity and the Labor Market in Eastern Germany

IT IS DIFFICULT TO FIND A MORE dramatic episode of economic disloca-tion in peacetime during the twentieth century than that associated with the reunification of Germany. It is a sad irony of history that the plucky East Germans who toppled the dictatorship of the proletariat in the bloodless revolution of 1989 were rewarded with an economic bloodletting on such a vast scale. From 1989 to 1992, GDP in the former German Democratic Republic declined by roughly 30 percent, value added in industry by more than 60 percent, and employment by 35 percent. During the same period, unemployment rose from officially zero to more than 15 percent. That figure, moreover, is based on registered unemployment only; joblessness 1