Eastern German Economy: No Catching-up in 2008 and 2009
Wirtschaft im Wandel,
No. 6,
2008
Abstract
In the New Lander, growth of production is characterized by two diverging developments. On the one hand, the manufacturing sector has expanded strongly while the public service sector as well as the retail sectors has considerably damped economic activity. On the other hand, those firms primarily bound to local markets have gained hardly any momentum, whereas others have been stimulated by external markets in Western Germany and abroad. These differences are mainly due to weak local demand in the wake of a low purchasing power and an ongoing reduction in the population. At the same time, export-oriented firms in the manufacturing sector have benefited from strong external demand, and they will further benefit from it, although somewhat less owing to the slowing world economy. However, as East German exporting firms are less exposed to those countries where the ongoing crisis in the real estate and the financial sector has unfolded its dampening effects the most, they are also less prone to it. Accordingly, gross domestic product will increase by 1,7% this year and 0,8% in 2009. This translates into further improvements on labor markets. Registered unemployment will fall below one million. In particular, manufacturing firms and the private business service sector will increase their demand for labor.
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Real Options of Private House Owners in the East German Housing Market – How Demolition Subsidies Affect Investment Prospects for Private House Owners
Dominik Weiß
Wirtschaft im Wandel,
No. 6,
2008
Abstract
The subsidies of the German urban renewal program “Stadtumbau Ost” are claimed mainly by communal and cooperative housing companies. The instruments do not fit very well for private proprietors that hold a great part of the older housing stock in central locations, for example in Wilhelminian style districts. Interim evaluation reports concerning the implementation of the “Stadtumbau” program show good results for big housing blocks, but constantly high vacancy rates in the inner city quarters. It becomes obvious that the political targets have not been achieved completely so far and that market forces limit the extensive restoration of historic buildings.
The opportunities, economic incentives and the decisions of landlords and house owners will be analyzed with a real option approach. A detailed view considers the different available forms of subsidies, examining its power to affect real estate values and to initiate politically desired urban transformations. It can be shown that the current forms of subsidies fail to promote investment of private house owners because of rising value expectations. Downgrading the building zones to lower density might reduce unrealistic expectations that were identified as a hurdle to invest. As a consequence from this consideration, municipalities should implement alternative urban development concepts and adjust the subsidy policy.
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Economic Upswing and Vitalization of the Labor Market – Who Gains From the Upswing?
Herbert S. Buscher
Wirtschaft im Wandel,
No. 5,
2008
Abstract
The current situation with respect to the economic development in Germany may be characterized as somewhat suppressed as opposed to euphoric. And this statement holds although the German economy is in an upswing phase since 2005, and the GDP growth rates clearly exceed 2% per annum. The main driving forces of this upswing are mainly from the German exports as well as the domestic investment decisions. Rather underdeveloped compared with the exports and the investment is private consumption. This development is accompanied by positive signals from the German labor market. Declining unemployment figures, increasing regular employment and a smaller number of people in active labor market policy measures are the accompanying positive signals from the labor market. But this in general positive development has not yet reached widespread groups of employees in the sense that their real income has also risen and they thus can dispose of a higher amount of purchasing power. This time lag in the different developments between employment and income may lead to a situation that perceived and actual developments may differ and that actually, there might be a gap between the two. The paper discusses what could be meant with „perceived” development and reaches to the conclusion that actual and perceived developments are not so far away from each other than one might have expected.
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Consequences of the US-subprime Crisis Dampen Economic Growth in Germany
Wirtschaft im Wandel,
1. Sonderausgabe
2008
Abstract
The crises of the housing and the financial sector in the US and the turmoil on worldwide financial markets have clouded the prospects of the world economy for this and next year. In particular, conditions for financing consumption and investment will worsen. In addition, the price hikes for energy and food entail a redistribution of purchasing power from ordinary households to the producers of these goods. As a consequence of all this, the economy in the US will be more or less stagnating this year, and world growth will slow down. Firms in the nonfinancial sector, however, are generally in good financial condition, policy in the US takes strong measures to contain the crisis, and growth dynamics in emerging markets economies appear to be robust enough to withstand the dampening effects. In Germany, the economy is, in spite of the adverse effects from abroad and in particular the strong appreciation of the euro, still in good shape. Apparently, the economy has become more robust in the past years, partly due to increased competitiveness of German producers. Still, economic expansion will slow down, with annual growth rates of 1.8% for this year and 1.4% for 2009.
For the first time the forecast of the institutes comprises a medium term projection. For this, the potential growth rate of the German Economy is estimated to be 1.6%. As to policy recommendations, the institutes advise against the establishment of minimum wages in Germany, because they fear adverse effects for employment. In this point the IWH and its partners take a different view.
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In Focus: Migration Behaviour of East Germans
Alexander Kubis, Lutz Schneider
Wirtschaft im Wandel,
No. 4,
2008
Abstract
During the transition period, East Germany faced a strong out-migration towards the western part of Germany. Between 1989 and 2006, the net loss of internal migration in East Germany accumulated to 1.7 million people. Regarding the age distribution of these internal migration flows, it is shown that the net losses are primarily – over 50% – caused by young people aged 18 to 30 years. Besides the most important trend of East-West-migration, substantial regional differences can be observed. In the 1990s, the surrounding areas of large cities in East Germany benefited from suburbanisation. Afterwards, this trend has come to an end so that agglomerations in East Germany currently experience in-migration. However, peripheral regions faced strong negative net migration rates during the entire transition period.
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Does Temporary Employment Affect the Work-related Training of Low-skilled Employees?
Eva Reinowski, Jan Sauermann
Zeitschrift für Arbeitsmarktforschung,
No. 4,
2008
Abstract
Using the German Mikrozensus 2004, this paper analyses the effect of temporary contracts on work-related training for low-skilled workers. To take systematic differences between temporary and permanent employees into account, we estimate a bivariate probit model for whether fixed-term employment affects participation in work-related training. We conclude that holding a temporary contract does not have systematic disadvantages in access to further training.
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A Minimum Wage of 7.50 Euro per Hour Does Particularly Affect Jobs in Business Related Services
Hans-Ulrich Brautzsch, Birgit Schultz
Wirtschaft im Wandel,
No. 3,
2008
Abstract
In the present public debate on the implementation of a minimum wage, different proposals concerning its design and level are discussed. Often, a minimum wage of 7.50 euro per hour is mentioned. Thereby, it is widely unknown how many employees do earn less than 7.50 euro per hour in different branches. Their jobs could be affected by the introduction of a minimum wage. By means of data of the German Socio-Economic Panels Study, it can be shown that the shares of the low-income earners are considerably high in some branches. Especially in Eastern Germany, in branches like retail trades as well as business related services many employees earn less than 7.50 euro per hour. Wage increases on the demanded minimum level would probably cause employment losses in these labour-intensive branches.
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The Relationship between Knowledge Intensity and Market Concentration in European Industries: An inverted U-Shape
Niels Krap, Johannes Stephan
IWH Discussion Papers,
No. 3,
2008
Abstract
This paper is motivated by the European Union strategy to secure competitiveness for Europe in the globalising world by focussing on technological supremacy (the Lisbon - agenda). Parallel to that, the EU Commission is trying to take a more economic approach to competition policy in general and anti-trust policy in particular. Our analysis tries to establish the relationship between increasing knowledge intensity and the resulting market concentration: if the European Union economy is gradually shifting to a pattern of sectoral specialisation that features a bias on knowledge intensive sectors, then this may well have some influence on market concentration and competition policy would have to adjust not to counterfeit the Lisbon-agenda. Following a review of the available theoretical and empirical literature on the relationship between knowledge intensity and market structure, we use a larger Eurostat database to test the shape of this relationship. Assuming a causality that runs from knowledge to concentration, we show that the relationship between knowledge intensity and market structures is in fact different for knowledge intensive industries and we establish a non-linear, inverted U-curve shape.
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The Stability of Bank Efficiency Rankings when Risk Preferences and Objectives are Different
Michael Koetter
European Journal of Finance,
No. 2,
2008
Abstract
We analyze the stability of efficiency rankings of German universal banks between 1993 and 2004. First, we estimate traditional efficiency scores with stochastic cost and alternative profit frontier analysis. Then, we explicitly allow for different risk preferences and measure efficiency with a structural model based on utility maximization. Using the almost ideal demand system, we estimate input- and profit-demand functions to obtain proxies for expected return and risk. Efficiency is then measured in this risk-return space. Mean risk-return efficiency is somewhat higher than cost and considerably higher than profit efficiency (PE). More importantly, rank–order correlation between these measures are low or even negative. This suggests that best-practice institutes should not be identified on the basis of traditional efficiency measures alone. Apparently, low cost and/or PE may merely result from alternative yet efficiently chosen risk-return trade-offs.
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Urban Renewal in Saxony: A Need for a more Problem-orientated Allocation of Subsidies!
Claus Michelsen
Wirtschaft im Wandel,
No. 2,
2008
Abstract
Currently, the political discussion of urban renewal in East Germany focuses more and more on new strategies to solve the problems of urban decline and vacancies on the housing market. Since 2001, the demolition of housing has been subsidized with approximately one billion Euros. Critics of this strategy argue that the continuation of demolition leads to a fragmentation of cities and a loss of urban functions. Therefore, they suggest to focus more on revitalization of residential quarters and to allocate more subsidies to improve neighbourhoods as well as residential amenities to lower housing vacancies.
This article argues that on the one hand, the overall housing vacancy-rates cannot be lowered with the current instruments of urban revitalization. Even though, there is a chance to attract citizens from the periphery of cities. This means to redistribute housing vacancies instead of an overall reduction. On the other hand, this strategy needs to be clearly focused on selected cities in which a potential of immigration exists. However, empirical results from Saxony suggest a different picture: The allocation of subsidies for urban revitalization shows no identifiable pattern. Therefore, the author proposes to refocus the policy of urban redevelopment.
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