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What hides behind the German labor market miracle? A macroeconomic analysis

Moritz Kuhn and Philip Jung ()

No 614, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: The Hartz reforms in the early 2000s have reshaped the German labor market and have led to what many observers call the "German labor market miracle". This paper closes a gap in the evaluation of the reforms by providing a macroeconomic analysis of the effects of the reform on worker flows. We use SIAB micro data to construct worker flow series between employment and unemployment for the period from 1980 to 2010. To disentangle cyclical from long-run effects, we construct a new data series using unemployment benefit claims to extend worker flow series until 2014. Using this new data, we show that 40 % of the decrease in unemployment is accounted for by cyclical movements in the separation rate. The remaining 60 % are accounted for by the reversed secular decline in Germany's job finding rate. We complete our analysis by a structural analysis based on a search and matching model of the German labor market. We estimate the effects of each of the four reform steps (Hartz I-IV) to provide an answer to the question which part of the reform has been most important in generating Germany's labor market miracle.

Date: 2015
New Economics Papers: this item is included in nep-dge and nep-eur
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