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Unemployment Benefits and Wages: Evidence from the German Hartz-Reform

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  • Wolfgang Nagl

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  • Stefan Arent

Abstract

Using the introduction of fixed long-term unemployment benefits in Germany in 2005 as a unique experiment we find strong evidence that lower unemployment benefit has an adverse effect on wages. We use panel data to identify and estimate the effect of this structural break. In western Germany the effect is higher for men and increases with the skill level. In eastern Germany there is no systematic difference between men and women but the negative impact on wages is confirmed.

Suggested Citation

  • Wolfgang Nagl & Stefan Arent, 2012. "Unemployment Benefits and Wages: Evidence from the German Hartz-Reform," ERSA conference papers ersa12p78, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa12p78
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    File URL: http://www-sre.wu.ac.at/ersa/ersaconfs/ersa12/e120821aFinal00080.pdf
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    References listed on IDEAS

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    1. John Addison & Mário Centeno & Pedro Portugal, 2009. "Do Reservation Wages Really Decline? Some International Evidence on the Determinants of Reservation Wages," Journal of Labor Research, Springer, vol. 30(1), pages 1-8, March.
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    5. Hans-Werner Sinn & Wido Geis & Christian Holzner, 2009. "Die Agenda 2010 und die Armutsgefährdung," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 62(17), pages 23-27, September.
    6. Franz Kronthaler, 2003. "A Study of the Competitiveness of Regions based on a Cluster Analysis: The Example of East Germany," ERSA conference papers ersa03p27, European Regional Science Association.
    7. Harris, Richard D. F. & Tzavalis, Elias, 1999. "Inference for unit roots in dynamic panels where the time dimension is fixed," Journal of Econometrics, Elsevier, vol. 91(2), pages 201-226, August.
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    9. McCall, Brian & Chi, Wei, 2008. "Unemployment insurance, unemployment durations and re-employment wages," Economics Letters, Elsevier, vol. 99(1), pages 115-118, April.
    10. repec:iab:iabzaf:v:40:i:1:p:45-64 is not listed on IDEAS
    11. Kronthaler, Franz, 2003. "A Study of the Competitiveness of Regions based on a Cluster Analysis: The Example of East Germany," IWH Discussion Papers 179, Halle Institute for Economic Research (IWH).
    12. Topel, Robert H, 1984. "Equilibrium Earnings, Turnover, and Unemployment: New Evidence," Journal of Labor Economics, University of Chicago Press, vol. 2(4), pages 500-522, October.
    13. Sabine Klinger & Thomas Rothe, 2012. "The Impact of Labour Market Reforms and Economic Performance on the Matching of the Short‐term and the Long‐term Unemployed," Scottish Journal of Political Economy, Scottish Economic Society, vol. 59(1), pages 90-114, February.
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    Cited by:

    1. 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.
    2. Ludsteck Johannes & Seth Stefan, 2014. "Comment on ‘‘Unemployment Compensation and Wages: Evidence from the German Hartz Reforms’’ by Stefan Arent and Wolfgang Nagl," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 234(5), pages 635-644, October.
    3. Wolfgang Nagl & Michael Weber, 2014. "Unemployment compensation and unemployment duration before and after the German Hartz IV reform," ifo Working Paper Series 186, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.

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