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Title: What hides behind the German labor market miracle? Unemployment insurance reforms and labor market dynamics

Author(s): Benjamin Hartung, Philip Jung and Moritz Kuhn

Publication Date: November 2018

Keyword(s): endogenous separations, labor market flows and Unemployment insurance

Programme Area(s): Labour Economics and Monetary Economics and Fluctuations

Abstract: A key question in labor market research is how the unemployment insurance system affects unemployment rates and labor market dynamics. We revisit this old question studying the German Hartz reforms. On average, lower separation rates explain 76% of declining unemployment after the reform, a fact unexplained by existing research focusing on job finding rates. The reduction in separation rates is heterogeneous, with long-term employed, high-wage workers being most affected. We causally link our empirical findings to the reduction in long-term unemployment benefits using a heterogeneous-agent labor market search model. Absent the reform, unemployment rates would be 50% higher today.

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Bibliographic Reference

Hartung, B, Jung, P and Kuhn, M. 2018. 'What hides behind the German labor market miracle? Unemployment insurance reforms and labor market dynamics'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13328