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Living Conditions in the New Federal States (January 1997)

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The Course Thus Far

1. Socio-demographic developments were marked by a population decline brought on by resettlement to West Germany, permanent East-West commuter traffic, an extreme drop in the birthrate, and a decrease in average household size. The average life expectancy in Eastern Germany was (in the GDR) and still is (in the new federal states) several years lower than in the old federal states.

2. Economic development with respect to income and the availability of goods was very positive as compared with the situation at the outset but lagged behind the euphoric initial expectations. East German productivity reached half the West German level, up from its starting position of one-third. In order to achieve parity, annual productivity growth in the East would have to be three percent higher than in the West for about twenty-five years. Only then would equal wages be economically feasible. This is an extremely ambitious goal, whose attainment is by no means certain.

3. In 1991, the average available income of private households in East Germany was 47.7 percent of the average available income of private households in West Germany; in 1994 that figure jumped to 78 percent. There has been further convergence since then. Although there has also been considerable price inflation, price levels are still lower than in the West, so that differences in real income are somewhat smaller still. Gross income from employment still accounted for up 91.5 percent of the national income in the East in 1994, while the figure in the West was 70.1 percent. The share of household income received as cash transfer benefits is still much higher in the new federal states than in the West. On both of these points, there is a need for equalization, which can lead to serious social conflict.

4. The distribution of earned income and of weighted per capita net income was far less unequal in the former GDR than in the old federal states. However, inequality has increased considerably in the new federal states, even if it has not reached the level of West German income inequality. At first, moving up or down the economic ladder was more common than in the West, but this has since stabilized. Upper-class people have experienced the fewest plunges. The share of low-income individuals (50 percent of the average income or lower) as well as the share of welfare recipients has clearly increased in the new federal states but has not yet reached the West German level.

5. The distribution of wealth among private households is far more uneven in the new federal states than in the old ones. This, however, is not the result of a strong concentration of ownership of shares in company assets, which are just being accumulated in the East; rather, it is due to a strong concentration of real estate and buildings, which find themselves in the hands of about 25 percent of households. A significant portion of privatized national assets were transferred to West Germans and foreigners.

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