Employment Commitments Strengthen Privatised Companies

Notable surge in productivity

ZEW Junior Research Associate Dr. André Diegmann, a researcher at both IWH and IAB and one of the study’s authors, explains, “The committed employment level in relation to the initial level played a crucial role in the development of productivity and the workforce within individual companies.” Privatised East German companies with minimum employment commitments experienced an average productivity increase of 86.8 per cent. This surge was particularly pronounced in companies whose initial employment levels were well below the contractually agreed minimum.

A similar relationship can be observed in the growth of employee numbers, which increased on average by six per cent. However, in companies with commitments close to the initial level, employment fell by an average of 6.8 per cent. Conversely, employment increased by an average of 54 per cent in companies whose targets exceeded their initial level.

Crucial role of minimum employment commitments

The research team simulated an alternative scenario without binding employment commitments. The result shows that these commitments significantly contributed to stabilising employment in East Germany. “Without these commitments, total employment in East Germany would have been 15 per cent lower ten years after reunification than it actually was. This underscores the significant role of labour market policy,” emphasises Diegmann.

Data foundation

The ZEW study is based on data from the German Federal Archives, encompassing all contracts and documents created by the THA. Diegmann notes, “Thanks to an institutional cooperation with the IWH, the research team was among the first to gain access to these confidential data.” The dataset includes 18,235 contracts with employment commitments. In addition, data from the Mannheim Enterprise Panel (MUP), offering insights into more than nine million companies in Germany and their productivity, was used for the comprehensive analysis.