Labor Market Effects of Economic Integration: The Impact of Re-Unification in German Border Regions

This paper exploits the significant reduction in impediments to labor mobility in the process of German re-unification in order to identify labor supply shocks in the West German labor market. The focus is on the quasi-experiment of the border removal in the regions situated at the German-German border that faced a massive increase of cross-border labor supply. The results indicate that despite a gain in employment, the border removal was accompanied by a decline in wages and an increase in unemployment relative to other West German regions. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2007.