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

Anja Bauer and Ian King ()

VfS Annual Conference 2016 (Augsburg): Demographic Change from Verein für Socialpolitik / German Economic Association

Abstract: We examine the proposition that the German 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 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 over that period. We find that the observed drop in productivity due to the GFC (6.3%) was very close to the drop required to explain the reallocation puzzle (6.8%). Conditional on this offset taking place, the observed percentage drop in unemployment benefits (16.7%) was approximately twice that required (6.3%) for the German miracle, and consistent with the significant drop in unemployment over the period.

JEL-codes: E24 E65 J24 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-dge, nep-eec and nep-mac
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Working Paper: The Hartz Reforms, the German Miracle, and the Reallocation Puzzle (2015) Downloads
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