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Macroeconomic Evaluation of Labor Market Reform in Germany

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  • Tom Krebs
  • Martin Scheffel

Abstract

In 2003–05 the German government implemented a number of far-reaching labor market reforms, the so-called Hartz reforms. At the heart of the reform package was the Hartz IV law, which resulted in a significant cut in the unemployment benefits for the long-term unemployed. The paper develops a macroeconomic model with search and incomplete markets, calibrates the model economy to German data and institutions, and uses the calibrated model economy to simulate the effects of the Hartz reforms, and in particular Hartz IV, on the German labor market. The paper finds that the Hartz IV reform reduced the noncyclical unemployment rate in Germany by 1.4 percentage points. Employed workers benefited from the Hartz IV reform in welfare terms, but unemployed workers lost. It further finds that the Hartz I–III reforms reduced the noncyclical unemployment rate in Germany by 1.5 percentage points. Finally, the authors’ analysis suggests that the Hartz reforms contributed to the good performance of the German labor market during the Great Recession.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal IMF Economic Review.

Volume (Year): 61 (2013)
Issue (Month): 4 (December)
Pages: 664-701

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Handle: RePEc:pal:imfecr:v:61:y:2013:i:4:p:664-701

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References

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  1. Michael C. Burda & Jennifer Hunt, 2011. "What Explains the German Labor Market Miracle in the Great Recession?," SFB 649 Discussion Papers SFB649DP2011-031, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
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Citations

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Cited by:
  1. Amélie Barbier-Gauchard & Francesco de Palma & Giuseppe Diana, 2013. "Why could Northern labor market flexibility save the eurozone?," Working Papers of LaRGE Research Center 2013-08, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg (France).
  2. Felbermayr, Gabriel & Impullitti, Giammario & Prat, Julien, 2014. "Firm Dynamics and Residual Inequality in Open Economies," CEPR Discussion Papers 9855, C.E.P.R. Discussion Papers.
  3. Andrey Launov & Klaus Wälde, 2013. "Thumbscrews for Agencies or for Individuals? How to Reduce Unemployment," Working Papers 1307, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 01 Sep 2013.
  4. Berthold, Norbert & Coban, Mustafa, 2014. "Kombilöhne gegen Erwerbsarmut: Warum die USA erfolgreicher sind als Deutschland," Wirtschaftswissenschaftliche Beiträge 125, Julius-Maximilians-Universität Würzburg, Lehrstuhl für Volkswirtschaftslehre, insbes. Wirtschaftsordnung und Sozialpolitik.
  5. Christopher A. Pissarides, 2013. "Unemployment in the great recession," LSE Research Online Documents on Economics 51546, London School of Economics and Political Science, LSE Library.
  6. Claudia Busl & Atilim Seymen, 2013. "(Spillover) Effects of Labour Market Reforms in Germany and France," WWWforEurope Working Papers series 8, WWWforEurope.
  7. Busl, Claudia & Seymen, Atılım, 2013. "The German labour market reforms in a European context: A DSGE analysis," ZEW Discussion Papers 13-097, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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