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Unemployment Compensation and Wages: A Difference-in-Differences Approach to Assessing the Wage Effects of the German Hartz Reforms

Author

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  • Weskott Johannes B. D.

    (former: Department of Economics, Free University of Berlin, Berlin, Germany)

Abstract

This paper examines the influence of the level of unemployment assistance (Arbeitslosengeld II) on the wage level by exploiting a quasi-natural experiment formed by the German Hartz reforms in 2005. Estimations are based on data from the Socioeconomic Panel ranging from 2000 to 2007. As dependent variables both real monthly gross salary and real hourly gross wage are used. Firstly, following the approach taken by Arent and Nagl (2013, Unemployment Compensation and Wages: Evidence from the German Hartz Reforms. Jahrbücher für Nationalökonomie und Statistik 233 (4): 450–466), a before-after estimator is applied. Secondly, in contrast to the replication study by Ludsteck and Seth (2014, Comment on „Unemployment Compensation and Wages: Evidence from the German Hartz Reforms“ by Stefan Arent and Wolfgang Nagl. Jahrbücher für Nationalökonomie und Statistik 234 (5): 635–644) a control group is constructed and a difference-in-differences estimator (DiD) is used for further assessment. The results of the before-after estimation indicate a negative influence of the unemployment assistance reform on wages. However, the corresponding placebo regressions cast doubt on whether the estimated effect is a policy effect. The DiD approach shows that substantial time effects exist. This indicates that the before-after estimator is not suitable for assessing the policy effect. Applying the DiD estimator, a negative significant policy effect is only identified for men in West Germany.

Suggested Citation

  • Weskott Johannes B. D., 2020. "Unemployment Compensation and Wages: A Difference-in-Differences Approach to Assessing the Wage Effects of the German Hartz Reforms," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 240(1), pages 89-110, January.
    • Handle: RePEc:jns:jbstat:v:240:y:2020:i:1:p:89-110:n:2
    DOI: 10.1515/jbnst-2018-0020
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    References listed on IDEAS

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    1. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    2. Arent Stefan & Nagl Wolfgang, 2013. "Unemployment Compensation and Wages: Evidence from the German Hartz Reforms," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 233(4), pages 450-466, August.
    3. Nagl Wolfgang & Arent Stefan, 2014. "Unemployment Compensation and Wages: Evidence from the German Hartz Reforms – Reply," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 234(5), pages 645-646, October.
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    More about this item

    Keywords

    Hartz reforms; unemployment compensation; wages;
    All these keywords.

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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