30 years after the Peaceful Revolution, the Federal Government is continuing to aspire to establish equivalent standards of living throughout the country, to reduce disparities and to prevent their becoming entrenched. A lot of progress has been made on the convergence of economic performance and the standard of living between eastern and western Germany: The transport, energy and telecommunications infrastructure has been massively modernised and expanded. The condition of the buildings in towns and villages has visibly improved, and most of the pent-up need for renovation and modernisation from GDR times has been tackled.
The new Länder are an attractive place to establish young, innovative companies and research establishments. This is particularly obvious in the field of renewable energy. The presence of environmental and energy technologies is above average, and is playing an increasingly prominent role in economic development. The unemployment rate in eastern Germany reached a new record low in 2018, falling to 6.9%. However, this figure is still much higher than the 4.8% recorded in the west.
Much has been achieved, but the economic catch-up process in eastern Germany has slowed down a great deal in recent years. This is due to the fact that the economy in western Germany, which is closely integrated in international value chains, is also growing. The gap between the two economies is therefore very slow to close.
2019 Annual Report on the Status of German Unity
The Annual Report on the Status of German Unity focuses on the challenges that the government is facing in its efforts to establish equivalent living conditions across the whole of Germany, and, by extension, to strengthen the social fabric.
The report shows that there have been some very encouraging developments on the labour market and where incomes and subjective life satisfaction are concerned, but also that are still considerable differences between the respective economic strengths of individual regions in Germany. In 2018, gross domestic product per capita in eastern Germany amounted to 74.7% of the western German level. Even 30 years after the fall of the Wall, none of the eastern German Länder outside Berlin has reached the productivity level of the western German Land with the lowest productivity. In terms of labour productivity and the wage level, even the commercial centres of the eastern German Länder only have the economic potential of structurally weak urban regions in western Germany.
This is mainly due to piecemeal economic structures in eastern Germany where only a small number of large corporations are headquartered, resulting in comparatively low levels of innovation. For these reasons, the economy in eastern Germany needs a boost, particularly for small and medium-sized companies. The relevant economic weaknesses are further compounded by adverse demographic change in the many rural areas of eastern Germany, which leaves them held back in their economic development and causes issues with essential public services and utilities. If there is to be a good supply, and the funding is to be secure in the long term, the services need to be tailored to changing needs. It is very important for quality of life and social cohesion that this is also achieved in regions that are structurally weak and particularly hard-hit by demographic change.
Results of the annual employers’ survey conducted by the Institute for Employment Research (IAB)
The annual employers’ survey – a representative survey conducted annually by the Institute for Employment Research (IAB) – also provides many interesting facts about the ongoing process of economic harmonisation between the old and new federal states. The most important insights gained from the companies surveyed in the third quarter of 2020 are listed here:
In 2020, gross average monthly earnings across all sectors amounted to around €2,850 per full-time employee in eastern Germany (and to around €3,320 in western Germany). This means that, on average, eastern German employees earn 86% of the average wage paid in western Germany. The wage gap decreased for the third consecutive year.
On 1 January 2020, the general statutory minimum wage was raised from €9.19 to €9.35. At least one employee per company in approximately one in ten eastern German companies was affected by this change, compared with employees in only one in twenty companies (5%) in western Germany. 3% of eastern German employees saw their wages increase (western Germany: 2%). The increase in the minimum wage has thus had a greater impact on the economy of eastern Germany than on that of western Germany.
The number of companies and employees covered by collective bargaining agreements was two percentage points lower than in the preceding year. The collective bargaining coverage rate for eastern German companies now stands at only 18%. Fewer than half of eastern German employees work in the companies that are covered by a collective bargaining agreement. Even though similar developments can be observed for western Germany, the share of companies and employees that are covered by collective bargaining agreements is still higher in the western part of the country.
In eastern Germany, the proportion of larger companies authorised to provide training is higher than that of smaller ones. Overall, just under half (47%) of eastern German companies are authorised to provide training (western Germany: 54%). Since the beginning of the COVID-19 pandemic, the uptake of trainees in the companies authorised to provide training has decreased. The gap between eastern and western Germany has once again widened.
New funding scheme to replace the Solidarity Pact after 2020
Since reunification, the Federation has been supporting the New Länder (including Berlin) in their efforts to pay off extra costs that have accrued as a result of the division of Germany and to close the infrastructure gap that still exists between eastern and western Germany. The current fiscal equalisation system between the Federation and Länder, including the so-called Solidarity Pact II, will however expire in 2019. For this reason, the Federal Government agreed in the Coalition Agreement of 2018 to introduce a national funding system for structurally weak regions. In 2015, it had presented the first principles for the further development of regional policy for the whole of Germany. The implementation of certain measures, such as the pan-German programme “Innovation & Structural Change” and the extension of INNO-KOM (in German) to cover all structurally weak areas has been documented in the Progress Report on the Development of the Funding System in 2017 (in German) (PDF, 165 KB). In these principles, all the ministries involved undertook to review what they are doing to achieve equivalent living conditions in Germany; this includes an integrated system of supplementary federal measures aimed at establishing equivalent living conditions in all structurally weak regions (in east and west) in accordance with uniform criteria. This integrated approach will ensure that the Federal Government's support for structurally weak regions is highly effective.
In future, all structurally weak regions are to participate in the integrated regional funding system in line with similar principles. Funding programmes for the new federal states are being reviewed as to what extent they can contribute to a pan-German funding system and gradually also be offered in structurally weak areas of western Germany. The question of how to deal in future with structurally weak regions arises for Germany as a whole, whereby the special feature of eastern Germany is that, with a few exceptions, the structural weakness still affects the entire area. Ultimately, people should have a good living environment throughout the country so that they can develop their lives, participate in society, work and live a healthy life.