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The purpose of this paper is to explore the link between redistribution, convergence and local cultural capital (as defined by culture-based development concept).

The paper infers the basic mechanism of the cultural dependence of convergence and inequality – through an empirical test for the case of the “German job miracle” during the current crisis. Two empirical questions are asked: first, is local income inequality associated with local cultural capital and second, is the negative convergence between East and West Germany during the crisis related to culturally sensitive employers’ preference for job preservation vs job loss. An OLS enquiry and two deeper estimation methods (a logit model and a 3SLS simultaneous equations model) are alternatively applied in order to triangulate the empirical results.

The findings support the existence of cultural effect on local income inequality and cultural path dependence of employers’ preferences for job preservation vs job loss in a condition of economic shock.

The paper provides both theoretical reasoning and empirical illustration of the significance of the cultural effect on human preferences which may or may not allow for redistribution and convergence between localities.