DP12846 The Fall in German Unemployment: A Flow Analysis

Author(s): Carlos Carrillo-Tudela, Andrey Launov, Jean-Marc Robin
Publication Date: April 2018
Date Revised: March 2020
Keyword(s): Germany, Hartz reforms, Income inequality, mini-jobs, multiple job holding, non-participation, part-time work, unemployment
JEL(s): J21, J31, J63, J64
Programme Areas: Labour Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12846

In this paper we investigate the recent fall in unemployment, and the rise in part-time work, labour market participation, inequality and welfare in Germany. Unemployment fell because the Hartz IV reform induced a large fraction of the long-term unemployed to deregister as jobseekers and appear as non-participants. Yet, labour force participation increased because many unregistered-unemployed workers ended up accepting low-paid part-time work that was offered in quantity in absence of a universal minimum wage. A large part of the rise in part-time work was also due to the tax benefits Hartz II introduced to take up a mini-job as secondary employment. This has provided an easy way to top-up labour income staggering under the pressure of wage moderation. The rise in part-time work led to an increase in inequality at the lower end of income distribution. Overall we find that Germany increased welfare as unemployment fell.