Income levels in eastern Germany approaching western levels

A 1998 study by the Institut der deutschen Wirtschaft Köln finds that income levels in eastern Germany have already come close to western levels.

For many citizens in eastern Germany, the goal of equalisation of incomes between western and eastern Germany has top priority. Since unification, most German trade unions have demanded the equalisation of wage levels between eastern and western Germany. A recent study by the Institut der deutschen Wirtschaft Köln has found that income levels in eastern Germany have already come close to western levels ("Einkommensangleichung zwischen West- und Ostdeutschland: Eine Bestandsaufnahme", Michael Grömling and Claus Schnabel, in: iw-trends 3/98)

The extent of income convergence is difficult to determine empirically since it depends on the concept of income used. While collectively agreed basic wages and salaries in eastern Germany reached 89.5% of the western level in 1997 - see table below - convergence of effective wages per employee was only 77.2%. This is basically a result of lower levels of fringe benefits and of differences in collective bargaining outcomes. Collectively agreed supplementary benefits such as the annual bonus exist to a lesser extent in eastern than in western Germany. Furthermore, collective bargaining coverage is much lower in eastern Germany (DE9708128F). In some sectors, such as the metal and electrical industries and private banking, collectively agreed basic wages have equalised.

Convergence of collectively agreed basic wages (eastern Germany as % of western Germany), 1991-7
1991 60.0
1992 73.0
1993 80.0
1994 84.0
1995 87.0
1996 89.0
1997 89.5

Source: Collective bargaining archive of the Federal Ministry of Labour and Social Affairs .

When taking into account lower taxes and social security contributions in eastern Germany, the ratio of east/west convergence in labour income per employee reaches 85% in 1997. The respective figure for 1991 was 55%. Since the average price level in eastern Germany is still lower than in the west, real net labour income per employee probably only differs by about 10%. As regards the gross value added per employee, eastern Germany reaches only 62% of western German levels.

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