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The Hartz reforms, the German Miracle, and labor reallocation

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  • Bauer, Anja
  • King, Ian

Abstract

We analyse the recent history of unemployment and labor reallocation in the German economy using a variant of Lucas and Prescott’s (1974) reallocation model, modified to include unemployment benefits, rest unemployment, and aggregate shocks. We focus on the implied effects of the Hartz reforms and the Great Recession in the model, and compare them with the corresponding movements in German data. We find that the model’s qualitative predictions for reallocation and unemployment correspond well with the observations. When we calibrate the model to assess its quantitative performance, however, we find that it significantly overestimates the changes of both reallocation and unemployment since the introduction of the Hartz reforms.

Suggested Citation

  • Bauer, Anja & King, Ian, 2018. "The Hartz reforms, the German Miracle, and labor reallocation," European Economic Review, Elsevier, vol. 103(C), pages 1-17.
  • Handle: RePEc:eee:eecrev:v:103:y:2018:i:c:p:1-17
    DOI: 10.1016/j.euroecorev.2017.12.010
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    More about this item

    Keywords

    Labor market reallocation; Unemployment; Policy; Hartz reforms;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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