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Decomposing Beveridge curve dynamics by correlated unobserved components: The impact of labour market reforms in Germany

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  • Klinger, Sabine
  • Weber, Enzo

Abstract

Between 1979 and 2009, the German labour market moved along a Beveridge curve with changing slope that used to shift outwards but shifted inwards after severe labour market reforms had come into force. We analyse these dynamics and focus on the macroeconomic outcome of the reforms. For that purpose, we construct a new empirical model that links equilibrium unemployment theory to a flexible unobserved components model: we disentangle permanent and transitory components of matching efficiency and separation rate as well as unemployment and vacancies. Cointegration and identification are addressed. We find that matching efficiency and separation rate each account for about half of the inward shift. Thereby, the increase in trend matching efficiency is extraordinary and testifies to a permanent improvement on the labour market. Its visibility, however, was retarded by an overlay with a structural increase in tightness.

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  • Klinger, Sabine & Weber, Enzo, 2014. "Decomposing Beveridge curve dynamics by correlated unobserved components: The impact of labour market reforms in Germany," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100499, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc14:100499
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    Cited by:

    1. Enzo Weber, 2015. "The Labour Market in Germany: Reforms, Recession and Robustness," De Economist, Springer, vol. 163(4), pages 461-472, December.

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    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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