Working Papers

Systems Transformation and Labor Market Structure

The Case of East Germany

There is no doubt that socio-economic transformation has many consequences. Among the most important are the radical changes in the labour market and employment which have far-reaching implications for the situation of the people in the New Federal States.

Up to now, analyses have mainly focussed on the quantitative effects, above all on the number of job losses – with good reason: whereas about 9.6 million people were employed at the end of 1989,1 only 6.1 million people were by the middle of 1993. A remarkable number of these positions (in 1993) only existed because they were financed by so-called “active” labour market policy: they were either funded entirely, mainly as “public job creation programs,” or funded to a large degree, mainly as short-time work or training under continuation of the previous employment status. By the middle of 1992 the number of all these governmentally financed measures was equivalent to almost 0.9 million employment relationships (see Koller/Jung-Hammon, 1993: 4). In the summer of 1993 the number was a little, but not much lower.

Not included those governmentally financed employment relationships, far more than 40% of the jobs on the territory of the former GDR were lost within a few years — a development which is certainly without precedent in the entire history of industrial nations.

Differentiating according to sectors of employment, these job losses — of at least 4 million — mainly affected the employees in industry and agriculture, where employment dropped by at least two thirds from about 3.2 million and 0.9 million respectively until the spring of 1993. They affected the executives of the political and military sector in the former GDR (see footnote 1): Almost all of its about 0.7 million workplaces were lost. And they affected many other sectors and groups of employment.

Even considering that the supply side of the labour market was relieved by at least 0.5 million by migration and commuting to West Germany and West Berlin, the loss of employment opportunities for the East-German population has nevertheless affected about two fifths of the positions existing in autumn of 1989. And even assuming that age-specific labour force participation will spontaneously adapt to the far lower level of the old federal states, there will still be a lack of labour force demand for at least one third of the positions that existed before, or half of the currently existing employment relationships. The age-specific labour force participation was exceptionally high in the former GDR since, on average, entry into the labour force took place very early and leaving the labour force for reasons of age, in particular, took place very late.

It is obvious that up to now the quantitative consequences for the labour market had absolute priority in research and politics: How can this enormous gap in labour force demand either be temporarily bridged or permanently eliminated — and which instruments would have to be applied to achieve this? Which tasks could and should be solved by labour market policies, the policy on wages and other governmental policies, and which ones should be left under control of market forces?