What Accounts for the German Labor Market Miracle? A Structural VAR Approach

Mathias Klein and Stefan Schiman

Macroeconomic Dynamics, 2023, vol. 27, issue 3, 794-825

Abstract: This study examines the driving forces behind the strong decline in German unemployment from 2005 onwards and the exceptionally small increase during the Great Recession. Structural vector autoregressions (VARs) with sign restrictions show that wage moderation in the aftermath of labor market reforms was the dominant factor of the unemployment decline, and that improved matching and shrinking labor supply also contributed to it. The adjustment to business cycle shocks (Great Recession), on the other hand, is to a large extent borne by the intensive margin, which can be explained by institutional aspects of the German labor market.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:27:y:2023:i:3:p:794-825_9

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