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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. Fahr, René & Sunde, Uwe, 2009. "Did the Hartz Reforms Speed-Up the Matching Process? A Macro-Evaluation Using Empirical Matching Functions," Munich Reprints in Economics 20482, University of Munich, Department of Economics.
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Cited by:
  1. 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.
  2. Christopher A. Pissarides, 2013. "Unemployment in the Great Recession," CEP Discussion Papers dp1210, Centre for Economic Performance, LSE.
  3. Amélie Barbier-Gauchard & Francesco De Palma & Giuseppe Diana, 2013. "Why could Northern labor market flexibility save the eurozone ?," Working Papers of BETA 2013-09, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  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. Launov, Andrey & Wälde, Klaus, 2013. "Thumbscrews for Agencies or for Individuals? How to Reduce Unemployment," IZA Discussion Papers 7659, Institute for the Study of Labor (IZA).
  6. 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.
  7. Kurt Kratena & Mark Sommer, 2014. "Labour Market Policy and Environmental Fiscal Devaluation: A Cure for Spain in the Aftermath of the Great Recession?," WIFO Working Papers 476, WIFO.
  8. Claudia Busl & Atilim Seymen, 2013. "(Spillover) Effects of Labour Market Reforms in Germany and France," WWWforEurope Working Papers series 8, WWWforEurope.

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