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What accounts for the German Labor Market Miracle? A Macroeconomic Investigation

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  • Schiman, Stefan
  • Klein, Mathias

Abstract

We study the driving forces of the so-called "German labor market miracle" the trend-shift and steady decline of German unemployment over the last two decades that persisted beyond the Great Recession. Our structural VAR approach encompasses various factors within a single comprehensive framework based on robust sign restrictions. We find that wage bargaining shocks account for most of the observed unemployment decline. Wage moderation was most pronounced right after the implementation of Hartz IV, but it persisted far beyond that. Moreover, the real effects of wage bargaining shocks were stronger post-1999, i.e. within the monetary union. In contrast, the muted response of unemployment to the Great Recession was not significantly different to the experience in previous business cycle downturns. The results are robust to several modifications of the model and changes in the sample.

Suggested Citation

  • Schiman, Stefan & Klein, Mathias, 2019. "What accounts for the German Labor Market Miracle? A Macroeconomic Investigation," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203593, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc19:203593
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    1. Christian Merkl & Enzo Weber, 2020. "Raus aus der Neueinstellungskrise! [End the Recruitment Crisis!]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 100(7), pages 507-509, July.

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    More about this item

    Keywords

    German labor market miracle; structural VAR; sign restrictions;
    All these keywords.

    JEL classification:

    • 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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