The rapid wage increases observed in Eastern Germany over the past two years have important implications for the direction taken by structural change in this region. These implications are not solely negative, and remain controversial in the public debate. This paper discusses four aspects of a...

After unification, real wages in Eastern Germany rose rapidly relative to labour productivity despite high and rising levels of unemployment. This substantial increase in wage levels relative to those in Western Germany is difficult to explain without recourse to models of union behaviour or...

This paper argues that the application of the `2% rule' to the case of Eastern Germany, which implies convergence in three decades or more, is overly pessimistic. First, it ignores discrete improvements in initial conditions related to the transition, which have been significant to date. Because...