The determinants of job creation and destruction: plant-level evidence for Eastern and Western Germany

We examine job creation and destruction in Eastern and Western Germany for the period of 1999 to 2004, using a large dataset, which enables us to capture clearly entries and exits. There are pronounced differences between the two parts of Germany in terms of magnitude and composition of gross job flows. Considering interaction effects between all variables, weighted regressions show that job creation and destruction can be explained to a large part by plant-specific factors. The pattern found to be pervasive in descriptive studies for other countries that job reallocation rates diminish with firm size and firm age also holds true for Germany. Given that East German plants are smaller and younger than their West German counterparts, this finding largely explains the differences between the East and West German labour dynamics.