Table Of ContentStudies in Contemporary Economics
Editorial Board
B. Felderer
B. Gablen
H.J.Ramser
K W. Rothschild
Michael Lechner
Training the
East German Labour Force
Microeconometric Evaluations
of Continuous Vocational Training
after Unification
With 73 Figures
and 29 Tables
Springer-Verlag Berlin Heidelberg GmbH
Privatdozent Dr. Michael Lechner
FakuItăt fUr Volkswirtschaftslehre
Universitiit Mannheim
D-68131 Mannheim
ISBN 978-3-7908-1091-2
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Die Deutsche Bibliothek - CIP-Einheitsaufnahme
Lechner, Michael:
Training the East German labour force : microeconometric
evaluations of continuous vocational training after unificat ion: with
29 tables / Michael Lechner. - Heidelberg: Physica-Ver!., 1998
(Studies in Contemporary Economics)
Zug!.: Mannheim, Univ., Habil.-Schr.
ISBN 978-3-7908-1091-2 ISBN 978-3-642-59009-2 (eBook)
DOI 10.1007/978-3-642-59009-2
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ACKNOWLEDGEMENTS
The present work is a slightly revised version of my habilitation at the Eco
nomics Department of the University of Mannheim. I would like to thank, first
and foremost, my academic teacher Professor Heinz Koenig for his encour
agement and help through all stages of my work. I also thank the second refe
ree, Professor Axel Boersch-Supan, for many helpful comments and sugges
tions in particular during the final stages of this work. Many, many other peo
ple contributed with helpful comments and proposals. Here I shall only name
two of them, my colleagues Franyois Laisney and Martin Eichler.
I am very much indebted to Nadine Riede for carefully reading the manuscript
as well as for the very time consuming task of producing the final layout. Klaus
Kornmesser provided invaluable assistance when preparing the large datasets
necessary for the estimations.
This work could not have been realised without the help of various institutions.
I gratefully acknowledge financial assistance from the Deutsche For
schungsgemeinschaft (grant Le 928) as well as from Harvard University. My
time as John-F.-Kennedy-Fellow at the Center for European Studies clearly
shaped the 'final product' in many ways.
Last, but not least, I thank my wife Doris Lechner for a lot of proof-reading
and, even more importantly, I thank my family for their great patience espe
cially during the hectic final stages of this project.
I dedicate this work to my children Melanie and Tobias.
CONTENTS
I INTRODUCTION ................................................................................... 1
I. 1 ABOUT 1HE TOPIC .............................................................................. 1
I.2 LABOUR MARKETS IN EAST GERMANY AFTER UNIFICATION ............... 3
I.3 CONTENTS AND SUMMARY OF THE RESULTS ...................................... 7
104 CAUSALITY AND THE IDENTIFICATION PROBLEM IN EVALUATION
STUDIES ............................................................................................. 9
II ESTIMATES OF THE EFFECTS OF TRAINING ........................... 19
11.1 PUBLIC-SECTOR-SPONSORED TRAINING ........................................... 19
/1.1.1 Introduction ............................................................................. 19
Il.1.2 Institutional framework ........................................................... 22
/1.1.3 Data ......................................................................................... 26
Il.1.4 Identification, estimation, and empirical implementation ...... 33
11.104.1 Identification of the causal effects of training .................. 33
11.1.4.1.1 Econometric considerations ............................................. 33
11.1.4.1.2 Variables potentially influencing the training decision
and the outcomes .............................................................. 36
11.104.2 Empirical implementation ............................................... .41
11.1.4.2.1 Estimators ........................................................................ 41
11.1.4.2.2 Balancing score and partial propensity score .................. 44
Il.1.5 Participation in training: Estimation results for the partial
propensity score ..................................................................... .45
Il.l.6 Empirical implementation of the matching algorithm ........... .49
11.1.7 Evaluation ............................................................................... 54
11.1.7.1 Outcomes .......................................................................... 54
11.1.7.2 Results .............................................................................. 55
11.1.7.3 Sensitivity ......................................................................... 61
11.1.8 Conclusion ............................................................................... 62
11.2 ENTERPRISE-RELATED TRAINING ..................................................... 64
/1.2.1 Introduction ............................................................................. 64
viii
11.2.2 Data ......................................................................................... 66
II.2.3 Descriptive statistics ............................................................... 70
II.2.3.1 Enterprise-related training and participants ..................... 70
II.2.3.2 Enterprise-related training participants and
nonparticipants ................................................................. 70
11.2.4 Identification, economic theory, and information in the
sample ...................................................................................... 80
11.2.5 Results ..................................................................................... 86
II.2.S.1 Participation in training: partial propensity score ............ 86
II.2.S.2 Participation in training: similarity of training
participants and matched control groups .......................... 89
II.2.6 Evaluation results .................................................................... 93
II.2.6.1 Introductory remarks ........................................................ 93
II.2.6.2 Results .............................................................................. 94
II.2.6.3 Sensitivity ....................................................................... 100
11.2.7 Conclusion ............................................................................. 102
ApPENDIX II.A: DATA .............................................................................. 103
II.A.l The definition of the earnings variable ................................... 103
II.A.2 Descriptive statistics ................................................................ 104
II.A.3 Description of some training characteristics .......................... 109
ApPENDIX II.B: ECONOMETRICS .............................................................. 114
II.B.l Matching protocol ................................................................... 114
II.B.2 Corrections for mismatch ........................................................ lIS
ApPENDIX II.C: SPECIFICATION TESTS FOR THE PARTIAL PROPENSITY
SCORE ............................................................................ 118
II.C.l Methods used to compute the tests .......................................... 118
II. C.2 Results of the specification tests for enterprise-related
training participation .............................................................. 119
ApPENDIX II.D: ADDmONAL EVALUATION RESULTS ............................... 123
II.D.l Public sector sponsored training ............................................ 123
II.D.2 Enterprise-related training ..................................................... 127
III BOUNDS FOR THE EFFECTS OF TRAINING ............................. 132
m.1 INTRODUCTION .............................................................................. 132
IX
m.2 IDENTIFICATION OF THE CAUSAL EFFECTS OF TRAINING ................. 135
III. 2.1 Causality, potential outcomes, and identification ................. 135
III.2.2 Bounding treatment and selection effects .............................. 138
II!.2.3 Shrinking the intervals .......................................................... 140
m.3 DATA ............................................................................................. 144
II!. 3. 1 General considerations ......................................................... 144
III.3.2 The microcensus .................................................................... 144
m.4
ESTIMATION OF THE BOUNDS ON THE CAUSAL EFFECTS OF
TRAINING ....................................................................................... 148
III.4.1 Empirical operationalisation ................................................ 148
II!.4.2 Estimation method used ........................................................ 150
m.5 RESULTS ........................................................................................ 151
II!. 5. 1 Identified quantities ............................................................... 153
111.5.2 Bounds ................................................................................... 157
m.6 CONCLUSION AND OUTLOOK. ......................................................... 164
ApPENDIX m .A: ECONOMETRICS ............................................................. 166
ApPENDIX m.B: RESULTS FOR OFF-THE-JOB TRAINING VERSUS NO
TRAINING ....................................................................... 170
II!.B.l Identified quantities ................................................................ 170
III.B.2 Bounds .................................................................................... 174
ApPENDIX m.c: RESULTS FOR ON-THE-JOB TRAINING VERSUS
OFF-THE-JOB TRAINING .................................................. 178
III. C.l Identified quantities ............................................................... 178
II!,C.2 Bounds ................................................................................... 181
ApPENDIX m .D: ADDmoNAL RESULTS FOR ON-THE-JOB-TRAINING
VERSUS NO TRAINING (WOMEN ONLy) .......................... 185
II!.D.l Identified quantities ............................................................... 185
lI!.D.2 Bounds ................................................................................... 186
IV CONCLUSIONS AND OUTLOOK. .................................................. 190
V REFERENCES ..................................................................................... 195
INTRODUCTION
1.1 ABOUT THE TOPIC
"Many politicians assume that training is one
of the best ways to get the jobless off the
Currently there appears to be a
dole. The evidence suggests that it is not
rather broad consent among poli
that simple.
ticians of developed countries -
These days, they [politicians] all agree that
and indeed among many econo
there should be more and better training. labour
mists as well - that job training is
ministers attending this week's 'job summit' .. ,
good for the economy. It increases nodded in approval as Robert Reich, America's
the skills of the labour force and labour secretary, told them his country was
committed to investing more in people, edu·
hence reduces long-term unem
cation and job training. This has become one of
ployment that is a particular
the few uncontroversial ideas about economic
problem for low-skilled workers. policy. Everywhere, governments boast of how
In addition it is believed that for much training they are doing and how much
they plan to do·while opposition parties (. .. ) at
the employed earnings will in
tack current programmes and future plans as
crease as well in. response to the hopelessly inadequate. Nobody seems to be
additional skills acquired. There saying that government-supported training is
often a waste of money-nobody, that is, except
fore, a broad consensus among the
the researchers who have examined the existing
special interest groups, such as
schemes."
unions and employers in the large The Economist, April 6, 1996, p. 23.
industrial nations is not surprising,
at least as long as the public sector bears part of the cost. This situation is
neatly described by the first part of the quotation from The Economist (1996)
given on the right hand side of this page. The last part of the quotation already
indicates that this view may be too optimistic.
From the perspective of the politically undisputed benefits of training it is not
at all surprising that training formed a substantial part of the active labour mar
ket policy conduCted in East Germany after unification. The necessary mod-
2
ernizing and restructuring of the centrally planned economy of the former Ger
man Democratic Republic (GDR) seemed as a text-book case for the need of
government and private sector financed vocational training. Consequently,
from 1990 to 1995 about DM 41 billion of public money have been spent by
the labour office ("Bundesanstalt fUr Arbeit") alone on training.\ The total
amount spent is clearly much higher. Despite that large sum it appears that
these expenditures - although reduced after 1992 - have never really been in
public controversy. This is very much in contrast to the extensive discussions
the other parts of the active labour market policies have been subject to. One
example for the enthusiasm about training is given in the special report of the
German Council of Economic Advisers in 1991.2 In this report the major con
cern was how to extend these training programmes to as many individuals as
possible.3 The question whether this would be an economically efficient strat
egy was apparently not asked.
It took this council until their yearly report in 1994 to make first cautionary
remarks.4 In a special part of this report about the value and need of change for
the active labour market policy, the value of training was not really questioned,
yet the general tone changed. It was noted that the effects of all parts of the
active labour market policy are very unclear, because there is a lack of
empirical evaluation studies. This line of development in thinking about train
ing in East Germany was followed in the yearly report of the council in 1995.5
Additionally, some of the econometric problems in evaluating such training
programmes were mentioned. Again, the lack of and the need for empirical
evaluations were emphasised. This work tries to fill part of the gap exposed
here by evaluating the effects of participating in different types of training on
subsequent labour market outcomes.
\ Sachverstandigenrat (1995), Table 30, p. 119.
2 "Sondergutachten zur Wirtschaftspolitik in den neuen Bundeslandern yom l3. April 1991
des Sachverstandigenrates zur Begutachtung der gesamtwirtschaftlichen Entwicklung."
Other institutions such as the labour office or the Federal Institute of Vocational Training
("Bundesinstitut fur Berufsbildung") were clearly not less optimistic about the value of
training.
3 Sachverstandigenrat (1991), p. 261, 263.
4 Sachverstandigenrat (1994,) p. 268.
5 Sachverstandigenrat (1995), p. 118.
3
To address the effects of training it is necessary to compare the employment
status or earnings of the individuals participating in training with the employ
ment status or earnings that these individuals would have obtained had they not
participated in such training. Hence, the fundamental problem of all empirical
evaluation studies is to find an estimate for these unobserved quantities. A con
siderable part of this work will be devoted to that issue, which is also known as
selection bias in the econometric literature. The very different handling of these
problems is very likely one of the reasons why the few econometric studies
trying to evaluate East German training reach very divergent conclusions.
Before different empirical evaluation studies are presented in more detail in the
following chapters, the next section gives a brief overview of the rapidly
changing East German labour market after unification. As will be explained
below, one has to take account of this very specific situation when performing
credible evaluations. Section 13 briefly summarizes the contents of the
evaluation studies. Section 1.4 describes the basic problem of inference in more
detail and sets up the notation used in the following chapters.
1.2 LABOUR MARKETS IN EAST GERMANY AFTER
UNIFICATION
The centrally planned economy of the German Democratic Republic (GDR)
was not prepared for unification in 1990.6 The West German type of market
economy with all its distinct features was imposed almost immediately after the
Economic, Monetary, and Social Union in July 1990. Hence, the institutional
settings of the West German market economy, the relative prices, and the
international competition came as a dramatic shock. GDP per capita, already
far below the level of West Germany, dropped sharply.7 In 1991 it was about a
quarter of the West German level. From 1991 to 1994 GDP rose with an annual
6 In the remainder of this work East Germany is understood to designate the territory of the
former GDR including East-Berlin (but excluding West-Berlin). Correspondingly, the term
West Germany means the territory of the former Federal Republic of Germany and West
Berlin.
7 The GDP figures given in this section are taken from Statistisches Bundesamt (1992, 1995),
the data on productivity and wages from Bundesministerium fi.ir Wirtschaft (1995).
