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

Stefan Schiman and Mathias Klein

VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy from Verein für Socialpolitik / German Economic Association

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.

Keywords: German labor market miracle; structural VAR; sign restrictions (search for similar items in EconPapers)
JEL-codes: C32 E24 E32 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc19:203593

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