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The Hartz Reforms, the German Miracle, and the Reallocation Puzzle

Anja Bauer and Ian King ()
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Anja Bauer: Friedrich-Alexander University of Erlangen-Nuremberg

No 550, Discussion Papers Series from University of Queensland, School of Economics

Abstract: We examine the proposition that the Hartz reforms offset the GFC’s effect on unemployment (leading to the †German miracle†) and the GFC offset the Hartz reform’s effects on reallocation, in Germany (leading to the reallocation puzzle) over the period 2005-2010. To do so, we use a labor reallocation model based on Lucas and Prescott (1974), but with the additional features of unemployment benefits and rest unemployment. The model generates two simple conditions that must hold for two events to simultaneously offset each other in this way. We estimate the key parameters of the model to assess the extent to whether these conditions were satisfied in Germany at that time. We find that the observed drop in productivity due to the GFC (6.6%) fell somewhat short of the drop required to explain the reallocation puzzle (10.1%). Conditional on this offset taking place, the observed percentage drop in unemployment benefits (26.7%) was approximately four times that required (6.6%) for the German miracle.

Keywords: Labor market reallocation; unemployment; policy; Hartz reforms (search for similar items in EconPapers)
JEL-codes: E24 E43 E65 J24 J62 J65 (search for similar items in EconPapers)
Date: 2015-09-21
New Economics Papers: this item is included in nep-lab and nep-mac
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Working Paper: The Hartz Reforms, the German Miracle, and the Reallocation Puzzle (2016) Downloads
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