Abstract
Rarely have modern labor markets witnessed wage increases so rapid as in Eastern Germany following the events of November 1989. In the first five years after the unification, nominal wages rose by more than 200 percent and doubled in purchasing power. Measured in terms of the output that labor is used to produce, wages rose by almost 350 percent. Substantial disagreement continues to characterize the discussion of the effects of high wages in the five new German states. On the one hand, the Bundesbank, the Sachverst ändigenrat (Council of Economic Advisors), and major economic research institutes have argued that moderate wage settlements would have been essential for accelerating the process of structural change. According to this position, steep wage increases retarded the retooling of the eastern German economy. Trade unions, in contrast, have replied that high wages were necessary precisely to guarantee that the forces of structural change were brought to bear on industry and to promote investment in skills.
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Burda, M., Funke, M. (2001). Wages and Structural Adjustment in the New German States. In: Riphahn, R.T., Snower, D.J., Zimmermann, K.F. (eds) Employment Policy in Transition. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-56560-1_3
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DOI: https://doi.org/10.1007/978-3-642-56560-1_3
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