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What hides behind the German labor market miracle? Unemployment insurance reforms and labor market dynamics

Author

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  • Hartung, Benjamin
  • Jung, Philip
  • Kuhn, Moritz

Abstract

A key question in labor market research is how the unemployment insurance system affects unemployment rates and labor market dynamics. We revisit this old question studying the German Hartz reforms. On average, lower separation rates explain 76% of declining unemployment after the reform, a fact unexplained by existing research focusing on job finding rates. The reduction in separation rates is heterogeneous, with long-term employed, high-wage workers being most affected. We causally link our empirical findings to the reduction in long-term unemployment benefits using a heterogeneous-agent labor market search model. Absent the reform, unemployment rates would be 50% higher today.

Suggested Citation

  • Hartung, Benjamin & Jung, Philip & Kuhn, Moritz, 2018. "What hides behind the German labor market miracle? Unemployment insurance reforms and labor market dynamics," CEPR Discussion Papers 13328, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13328
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    References listed on IDEAS

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    More about this item

    Keywords

    endogenous separations; labor market flows; Unemployment insurance;

    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
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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