East Germany Rearguard
Only investments in education will lead to a further catch-up
Dossier
In a nutshell
The East German economic convergence process is hardly progressing. The economic performance of East Germany stagnates between 70 and 80% of West Germany's level, depending on the statistical figure used. The productivity gap between East German companies and equivalent groups in the west remains even if firms of the same size of workforce and the same industry are compared.
Politicians' and economists' explanations for this development differ: While politicians are more likely to argue with the start-up difficulties, the lack of large-scale research firms and the break-up of the East German markets, scientists have brought lack of investment in education and research, the lack of internationality and insufficient innovations – and thus future-oriented arguments – to the forefront.
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In the first half of the 1990's, policy focused on the build-up of physical infrastructure. East Germany's economic performance increased substantially. “This process benefited from transfers from West Germany, which is why productivity advanced faster compared to other transition countries such as Poland, Hungary or the Czech Republic,” says Oliver Holtemöller, IWH Vice President. Today, the East-German physical infrastructure is on the same level as West Germany. However, the fact that the catch-up process has remained slow thus far, also in terms of the employment structure in East Germany, has other causes.
Demography
While the population in West Germany had been stagnating since the turn of the millennium and recently even increased, East Germany suffers a decline in population of about 15% since 2000 since many people left East Germany after the German unification. “On the one hand, the decline can be explained by natural demographic development. On the other hand, people still have better economic perspectives elsewhere and therefore move,” Oliver Holtemöller points out. Indeed, in 2015, the population increased in East Germany as well. But this is mainly due to the extraordinary influx of refugees who are distributed to the federal states of Germany according to a fixed ratio.
Insufficient investment in education and research
To improve the economic situation, it is essential to invest in education and research – from early childhood development to academic training. Education does not only enable people to participate in the labour market with equal chances but also fights poverty and unemployment, which is far more sustainable, for example, than the widespread minimum wage. Education is the key to innovation and productivity. The same is true for investments in research and development. In 2012, for example, Saxony-Anhalt spent just 1.5% in relation to GDP, which was the lowest number among all 16 German federal states.
Lack of internationality
The German economy is strongly oriented toward international markets. Here Saxony-Anhalt has a long way to go as an East German state – foreign sales as a percentage of the total sales the manufacturing sectors is about 30%, well below the national average of 45%.
“The partial manifestation of xenophobia aggravates the situation,” says Holtemöller. On the one hand, this is a negative location factor: For example, in Saxony-Anhalt, the number of right-wing criminal offenses is twelve times higher than in Hesse. This makes it extremely difficult to attract qualified specialists from foreign countries to settle in East Germany.
“A one-sided orientation toward physical capital and technology will not help to bring East Germany forward. The key future drivers are human capital, creativity and open-mindedness,” summarises the Vice President.
Info Graphics
The German economy has overcome a period of weakness following reunification
Gross domestic product per capita, purchasing power parity, 2011, international dollar
Degree of openness of the German economy
Gross domestic product per capita, purchasing power parity, 2011, international dollar
Current account balance
Relative to gross domestic product, in %
Productivity differences in Germany between west and east
Gross domestic product in current prices per employee
East-west differences in productivity in companies of all sizes
East-west differences in productivity in companies of all sizes
Hardly any corporate HQs in East Germany
Headquarters of the TOP 500 companies in Germany 2016 ranked by DIE WELT
East-west productivity differences are smaller in rural areas than in cities
Gross domestic product per employee in urban and rural spaces in East Germany including Berlin, spatial category in West Germany = 100
Economic output per resident in German regions compared to European regions
Gross domestic product (GDP) in purchasing power parities (PPS) per capita 2016
Economic output per capita in East Germany higher than in the Visegrád countries
Gross domestic product per capita in purchasing power parities relative to Germany, in %
Germany‘s regional income disparity has lessened compared to other European regions
Variance of gross domestic product, lograrithmised, purchasing power parities
East Germany has only recorded a more favourable development of economic output than West Germany in 11 out of 26 years
Yearly rate of change of gross domestic product, price-adjusted, chain-linked, in %
Average wage: clear east-west divide in salaries
Median of monthly gross wages of full-time employees liable to the social insurance system; Germany = 100, 31.12.2017
Services are the main source of added value and employment
Absolute change in gross value added in current prices and in employment by industries
Underemployment rates: large regional differences
Underemployment quota in Germany = 100, 2017
Lack of capital of no significance for East Germany‘s productivity shortfall
Gross fixed assets at replacement costs in East Germany including Berlin relative to West Germany, in %
In East Germany, rural regions gained aboveaverage benefit from regional aid – but the period of generous subsidies is over
Investment grants to commercial businesses from 1991 to 2017
In East Germany, rural regions gained aboveaverage benefit from regional aid – but the period of generous subsidies is over
Investment grants to commercial businesses from 1991 to 2017
East-west migration: net emigration comes to a halt
Out-migration from East Germany to West Germany, in-migration to East Germany from West Germany, migration balance, from 1989 to 2015
Population development in East Germany: an increase from 2013 onwards as a result of overseas migration gains
Population development in East and West Germany in the period from 1990 to 2015 by components, yearly population change (number of persons)
Internal migration: the population of rural areas in East Germany has continuously declined since 1999
Balance of internal migration per 1,000 inhabitants
Decline in working-age population in East German territorial areas until 2060 more than twice as big as in West Germany
Index of development of population at employable age (20 up to below 67 years) based on the updated 13. coordinated population projection by the Federal Statistical Office, year 2015 = 100
Migration gains from the EU: significantly lower in East Germany than in West Germany
Cumulative net migration gain per 1,000 inhabitants, Germany = 100
EU blue card: Berlin has a clear lead
Blue card recipients per 100,000 employees in the federal states in 2017
Proportion of people with a migrant background in East Germany and rural regions well below the federal average
Share of population without and with migration background in 2017 in % (total population = 100)
Percentage of foreigners seeking asylum: well above average percentage in East German territorial areas, with a lower percentage of foreigners
31.12.2016
Specialist staff vacancies: a growing problem in East and West German companies
Vacancies, 2007 to 2017, in %
Part-time work: lower proportion of part-time staff in East Germany
Part-time employment and share of part-time employment in total employment, 1997 to 2017
Tertiary education is falling behind in East German territorial areas
Employment in the federal states by education level, ranked by the share of employees with tertiary education
Tertiary education is falling behind in East German territorial areas
Employment in the federal states by education level, ranked by the share of employees with tertiary education
Large regional differences in school drop-outs
Early school leavers: share of school leavers who do not possess a Certificate of Secondary Education in the total number of school leavers in 2016, Germany = 100
In East Germany and structurally weak West German states, SMEs make an above-average contribution to the economy‘s research and development spending
Internal R&D expenditures in the corporate sector by employment size of firms 2015, in % (total expenditures per state or region = 100)
Baden-Wuerttemberg, Berlin, Lower Saxony and Bavaria spend above-average amounts on research and development
Share of internal R&D expenditures 2016 in gross domestic product by federal states and regions, current prices, in %
Excellence clusters: East German territorial areas underrepresented in cutting-edge research, with the exception of Saxony
Share of the federal states in the 57 excellence clusters of German universities in relation to the share in total population in Germany, in %
In industry, companies of below-average size tend to be associated with lower export rates
Employees per enterprise, share of exports in total turnover, 2017, enterprises belonging to firms of the manufacturing sector, mining and quarrying of 20 and more employees
East Germany‘s transfer dependency has fallen, but still exists
Gap between expenditure and gross domestic product in East Germany including Berlin, absolute volume and relative to the GDP in West Germany
2017 tax coverage ratio: still an east-west divide
Tax revenues as a percentage of adjusted expenditures, in %
Not all municipalities anticipate demographic change in their investment decisions
Distribution of municipal investment in fixed assets per resident in Euro for the years 2013 and 2014
Publications on "East Germany"
Does Low-pay Persist across Different Regimes? Evidence from the German Unification
in: The Economics of Transition, forthcoming
read publication
East Germany Three Decades After the Wall Came Down: What has Been Achieved and What Should Economic Policy Do?
in: Wirtschaftsdienst, forthcoming
Abstract
The persistent difference in productivity between East and West Germany not only results from the relative absence of large firms based in the East as many believe. Companies of all sizes exhibit an East-West productivity gap. The gap is larger in urban regions. Scarcity of skilled labour has emerged as the new barrier to business development. In order to boost productivity, economic policy should avoid additional subsidies that are conditional on creating jobs. Additionally, the potential of East German urban areas should be better explored. Mitigating the shortage in qualified workers requires in-migration of skilled labour from abroad, supported by an open mindset and environment.
Innovation Cooperation in East and West Germany: A Study on the Regional and Technological Impact
in: International Journal of Computational Economics and Econometrics, forthcoming
Abstract
In this paper, we investigate the impact of regional and technological innovation systems on innovation cooperation. We develop an indicator applicable to regions, which demonstrates the relative regional impact on innovation cooperation. Applying this method to German patent data, we find that regional differences in the degree of innovation cooperation do not only depend on the technology structure of a region but also on specific regional effects. High-tech oriented regions, whether east or west, are not automatically highly cooperative regions. East German regions have experienced a dynamic development of innovation cooperation since re-unification in 1990. Their cooperation intensity remains higher than in West German regions.
Coal Phase-out in Germany – Implications and Policies for Affected Regions
in: Energy, 2020
Abstract
The present study examines the consequences of the planned coal phase-out in Germany according to various phase-out pathways that differ in the ordering of power plant closures. Soft-linking an energy system model with an input-output model and a regional macroeconomic model simulates the socio-economic effects of the phase-out in the lignite regions, as well as in the rest of Germany. The combination of two economic models offers the advantage of considering the phase-out from different perspectives and thus assessing the robustness of the results. The model results show that the lignite coal regions will exhibit losses in output, income and population, but a faster phase-out would lead to a quicker recovery. Migration to other areas in Germany and demographic changes will partially compensate for increasing unemployment, but support from federal policy is also necessary to support structural change in these regions.
Aktuelle Trends: Fachkräftemangel hat in den letzten zehn Jahren in Ost und West stark zugenommen
in: Wirtschaft im Wandel, No. 3, 2019
Abstract
Vor dem Hintergrund sinkender Arbeitslosenzahlen und einer alternden Bevölkerung – vor allem im Osten Deutschlands – ist der immer schwieriger zu deckende Bedarf der Betriebe an Fachkräften in den letzten Jahren zu einem zentralen Thema in der öffentlichen und politischen Arbeitsmarktdebatte geworden. Fachkräfteengpass herrscht, wenn Betriebe Probleme haben bei der Besetzung von Stellen für qualifizierte Tätigkeiten, die eine Berufsausbildung, vergleichbare Berufserfahrung oder einen Hochschulabschluss erfordern. Wie hoch der Anteil der nicht besetzten Stellen an den insgesamt angebotenen Stellen ist, wird durch die Nichtbesetzungsquote angegeben. Sie kann damit als Indikator für einen Fachkräfteengpass interpretiert werden.
