Expected job loss in East Germany shortly before German unification

We investigate expectations concerning future job loss in the former German Democratic Republic shortly before the economic, monetary and social union in July 1990. In order to model these expectations, we take detailed account of individual heterogeneity, the availability and interpretation of information, and the economic and social environment of the individual. Our data base is the Socio-Economic Panel (SOEP) East. We find that, with some exceptions, East Germans hold expectations comparable to those held by individuals having experienced a market economy, which is surprising given the lack of such an economy in the previous German Democratic Republic. Since these expectations are only observed ordinally, an adequate estimation method is the ordinal logit model. The corresponding stochastic assumptions are tested extensively using pseudo-Lagrange multiplier tests against omitted variables, nonlinearity, asymmetry of distribution and heteroscedasticity. Furthermore, we apply Hausman tests to check the validity of the classification of the endogenous variable.