DP573 | German Trade Unions After Unification: Third Degree Wage Discriminating Monopolists?

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After unification, real wages in Eastern Germany rose rapidly relative to labour productivity despite high and rising levels of unemployment. This substantial increase in wage levels relative to those in Western Germany is difficult to explain without recourse to models of union behaviour or collective bargaining. This paper applies and extends such models and evaluates plausible explanations for recent short-run wage developments in the ex-GDR.