Labor market reforms: An evaluation of the Hartz policies in Germany

Bradley, Jake; Kügler, Alice

Abstract

How do workers and firms respond to comprehensive labor market reforms? We use detailed micro data to analyze the German Hartz Reforms through the lens of a structural model of the labor market. These reforms aimed at reducing unemployment, by increasing working hour flexibility, job matching and work incentives. In our setting, reforms directly affect the model parameters, which are estimated using matched data on 430,000 workers in 340,000 firms. Contrary to previous findings, our analysis shows that, although the reforms shortened the typical duration of unemployment, they did not reduce unemployment as a whole and led to a decline in wages. Low-skilled workers suffered the most in terms of employment and wage losses. Furthermore, we decompose the contribution of each reform wave to employment and wage changes, finding that the reduction in generosity of unemployment benefits was the principle driver in reducing wages.

Citation

Bradley, J., & Kügler, A. (2019). Labor market reforms: An evaluation of the Hartz policies in Germany. European Economic Review, 113, 108-135. https://doi.org/10.1016/j.euroecorev.2018.12.008

• Journal Article Type: Article
• Acceptance Date: Dec 23, 2018
• Online Publication Date: Jan 11, 2019
• Publication Date: Apr 1, 2019
• Deposit Date: Jul 29, 2019
• Publicly Available Date: Jan 12, 2021
• Journal: European Economic Review
• Print ISSN: 0014-2921
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 113
• Pages: 108-135
• DOI: https://doi.org/10.1016/j.euroecorev.2018.12.008
• Keywords: Labor market policy; Hartz reforms; Job search; Wages; Employment
• Public URL: https://nottingham-repository.worktribe.com/output/2351568
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0014292119300029