European Economy. Economic Papers. Germany's growth performance in the 1990's

Box 1 (continued)
In manufacturing alone, half of employment - or almost 1 million jobs - were lost in net terms
between 1991 and 2000. This employment effect cannot be attributed exclusively to the
closing down of old companies, but is also due to the failure to attract sufficient new
investment. Although 4% higher unit labour costs in manufacturing in the East compared to
the West may be within the range of statistical inaccuracy, a region attempting to catch up in
terms of income, productivity and employment should rather have lower unit labour costs
than other regions in order to compete for more investment and jobs.
High and only slowly falling relative unit labour costs took a severe toll in the labour market.
In 2000, there were on average 1.36 million unemployed people in East Germany.
Furthermore, there were about 800,000 people in “hidden” unemployment in East Germany,
so that the total number of registered and hidden unemployed in East Germany amounted to
2.16 million (cf. Figure B1.4). At the end of 2001, the official unemployment rate stood at
16.9%, compared with 7.4% in West Germany. These averages conceal variations in
unemployment rates in labour office districts of between 2.7% in Freising/Bayern (West
Germany) and 22.6% in Neubrandenburg/Mecklenburg-Vorpommern (East Germany). Thus,
within the same country there are regions with extreme labour shortages and others with
almost a quarter of the labour force without job.
However, in spite of higher unemployment and lower wages East German workers seem to
migrate insufficiently to West German regions offering jobs and higher wages. The main
flows of out-migration from East to West took place in the years 1989 and 1990. Since then,
net migration from East Germany has been only slightly negative although due to the
improved labour market situation in West Germany in 1999 and 2000 net out-migration from
the East increased again slightly. There is some evidence that the migration propensity is
higher among young and qualified people, although this is still hardly visible in the
demographic structure of East Germany relative to West Germany.