The Unification of Germany: A General Disequalibrium with Labor Migration

Among the many effects of German unification, there will be a disequilibrium in the labor market. The disequilibrium is a result of forty years of different economic systems. In East Germany, a relatively large percentage of the labor force is expected to become unemployed in the next year as compared to West Germany. The high rates of unemployment in the east compared to the west mean an excess supply of labor. There are reasons to expect both changes in the equilibrium wage, as well as migration from east to west. The purpose of the paper is to describe the process of migration and wage adjustment in re-equilibrating the labor market and analyze the expected welfare effects as a united Germany moves toward a new equilibrium in the labor market