Labour Market Problems and Labour Market Policy

Abstract

The hasty incorporation of the GDR on 1 July 1990 into the market system and currency region of the FRG brutally exposed the lack of international competitiveness of the GDR’s centrally planned economy, at a time when its post-war historic links with COMECON were also becoming dislocated (see Chapter 10 in this volume). The Eastern state was however not only absorbed into a single trading and currency area with its developed Western neighbour: it joined a social union, whereby it came to form part of a single labour market with the West, and so adopted Western social and labour legislation and industrial relations practices. Indeed, the prime motive for the forced pace of monetary, economic and social union was the desire to prevent the collapse of the GDR through the haemorrhage by migration westwards of its young and skilled labour in search of remunerative work. However, if the creation of this single labour market were to lead to a uniform level of wage costs throughout unified Germany, when labour productivity in the East was perhaps only 30 per cent of that in the West, this equalisation would raise the spectre of continuing long-term high unemployment in the less developed region. The very high labour costs of Western Germany, justified by the high productivity there, would be imposed on an Eastern Germany very different in structure and level of development.