Unemployment compensation and unemployment duration before and after the German Hartz IV reform

In 2005, the unemployment benefits for long-term unemployed were reduced in Germany. We investigate the effect of this reform on the transition probability from unemployment to employment using a large German administrative spell data set (SIAB 1975–2010). We estimate that the daily transition probability of medium wage earners increased on average by 24% after the reform. The effect is lower for both, low and high wage earners. Men were less affected than women and West Germans were less affected than East Germans. For short-term unemployed the effect is increasing over unemployment duration while long-term unemployed apparently did not benefit from the reform.