In 1990 a successful economic development of East Germany after the unification was generally predicted. Nevertheless, the real economic development has been a big disappointment. Especially the East German labour market is one of the most problematic areas and since the unification has made hardly any progress. The unemployment rate is high; too many people are working in public sector and too little in the manufacturing industry. The wages and labour productivity are at 75 % of the West German value. The aim of the paper is to describe the East German labour market development and provide explanation of its long-term failure. The first chapter has an analytical character and shows the main indicators of East German labour market in two past decades. The second chapter refers to the circumstances of the arguable transition of East Germany. The third chapter discusses the concrete causes of labour market failure. The main cause is the long-term adverse relationship between labour productivity and real wages. This problem had already been created at the beginning of the transition.
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