We formulate a general equilibrium matching model with spell-dependent unemployment bene…ts and endogenous search e¤ort. The model gives rise to an endogenous distribution of unemployment duration characterized by a time-varying hazard function. Using methods from the literature on Semi-Markov processes, we obtain an expression for the aggregate unemployment rate under heterogeneous search e¤ort. We perform structural estimation of the model using a German micro-data set (SOEP) and discuss the e¤ects of the recent unemployment bene…t reform (Hartz IV). Our results show that although the reform and economic growth have contributed to the reduction of the aggregate unemployment rate, aggregate welfare has gone down.JEL Codes: J 65, J 64, C 13
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