2.2 Selection Into Industries

Since this paper exploits variation at the industry level, it is important that the reunification

and economic integration of Germany were not anticipated. GDR citizens

self-selected into jobs and industries independently of conditions that later prevailed in

the market economy. A related argument has been made in the migration literature with

regard to pre-determined occupational choices of migrants (Friedberg, 2001; Borjas and

Doran, 2012; Prantl and Spitz-Oener, 2014).

In addition, job choices in the GDR were in principle made by the workers themselves,

but this was subject to constraints imposed by central planning. When Erich Honecker

came to power in 1971, access to higher education was severely restricted. Only very

few pupils were allowed to obtain the school diploma which qualified for direct university

admission. Apart from good performance in school, the demonstration of political loyalty

towards the GDR regime and participation in the “Free German Youth” were necessary

prerequisites for being accepted to this school track. Career counseling was meant to

influence individuals from an early age onwards to ensure that their occupational choices

were made in accordance with available positions. In the sixth school year at the latest,

students had to define their desired occupation for the first time. Applications for multiple

apprenticeship training positions were officially not possible (Köhler and Stock, 2004;

Fuchs-Schündeln and Masella, 2016). In sum, self-selection into industries was exogenous

to the labor demand shock studied in this paper because the reunification of Germany was

not anticipated and because job choices in the GDR were constrained by central planning.

2.3 Employment Development by Economic Sector

As the market economy was introduced in formerly communist East Germany, East Germany

experienced a sharp reduction in labor demand. I now discuss the labor demand

shock across broad economic sectors. At this level of aggregation I was able to compile

reliable and consistent employment data for a time series of several decades. This

time series illustrates why the East German labor demand shock can be interpreted as a


For this purpose, Figure 3 shows absolute employment in East Germany by sector from

1970 through 2007. The figure clearly reveals that before 1989 sectoral employment

structures were remarkably stable in the GDR. This stability reflects that central planners


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