The Effect of the Hartz Labor Market Reforms on Post-unemployment Wages, Sorting, and Matching

Simon Woodcock

No 13300, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We use linked longitudinal data on employers and employees to estimate how the 2003-2005 Hartz reforms affected the wages of displaced German workers after they returned to work. We also present a simple new method to decompose the wage effects into components attributable to selection on unobservables, and to changes in the way that displaced workers are sorted across firms and worker-firm matches upon re-employment. We find that the Hartz reforms substantially reduced the wages of displaced workers after their return to work. Women experienced smaller wage losses than men. For both sexes, over 80 percent of the increased wage loss was because displaced workers found re-employment in lower-wage firms after the reforms. A disproportionate share of these low-wage firms offer temporary employment services to other firms, and we document a large increase in post-displacement employment in the temporary work sector after the reforms. Sorting into worse matches with employers explains a smaller 5-9 percent of the wage loss experienced by men, and 12.5-23 percent of the female wage loss. Collectively, the sorting and matching channels explain almost all of the Hartz reforms' effect on post-displacement wages.

Keywords: selection; matching; sorting; reallocation; unemployment insurance; displacement; Hartz reforms; linked employer-employee data; fixed effects (search for similar items in EconPapers)
JEL-codes: C23 J31 J62 J63 J64 J65 J68 (search for similar items in EconPapers)
Pages: 69 pages
Date: 2020-05
New Economics Papers: this item is included in nep-eur, nep-hrm and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - published as 'The determinants of displaced workers’ wages: Sorting, matching, selection, and the Hartz reforms' in: Journal of Econometrics, 2023, 233 (2), 568-595

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