The German Labour Market Reforms in a European Context: A DSGE Analysis

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Abstract While a widespread consensus exists among macroeconomists that the German labour market reforms in [2003][2004][2005] have successfully contributed to the decline of the unemployment rate, critics claim that the reforms led to wage restraint and consequently consumption dampening accompanied by beggar-thy-neighbour effects, harming Germany's trade partners. We check up on the validity of these arguments by means of a two-country DSGE model featuring intra-industry trade and labour market frictions. Our results suggest that the disproportional growth of GDP (labour productivity) in comparison to consumption (wages) are only partially driven by the reforms. However, we do not find that the reforms contribute to Germany's trade surplus and cause negative spillovers to trading partners in terms of output and employment. The German Labour Market Reforms in a EuropeanJEL classification: E24, E61, E65, F42, J38, J63

German labor market and fiscal reforms 1999–2008: Can they be blamed for intra-euro area imbalances?

“…In addition, there is no consensus on the pre-reform steady-state unemployment rate which can also be a driver of results (Busl and Seymen, 2013). Similar to Busl and Seymen (2013) and Dao (2013a) we find positive spillover effects on the rest of the Euro Area. This is in line with the theoretical as well as empirical and theoretical literature on the international effects of labor market reforms (see, among others, Dao, 2013b, Felbermayr et al, 2012, Gomes et al, 2012, or Schwarzmüller and Stähler, 2013.…”

“…The evidence in these cases, however, is not clear-cut (see Wälde, 2013b, andScheffel, 2013). In addition, there is no consensus on the pre-reform steady-state unemployment rate which can also be a driver of results (Busl and Seymen, 2013). Similar to Busl and Seymen (2013) and Dao (2013a) we find positive spillover effects on the rest of the Euro Area.…”

“…Krause and Uhlig (2012) and Launov and Wälde (2013a) focus on Hartz IV only, while Krebs and Scheffel (2013) and Busl and Seymen (2013) also consider the effects of Hartz III. All papers focus on domestic effects except for Busl and Seymen (2013) who also analyze the spillover effects of structural (labor market) reforms on the Euro Area. Dao (2013a) analyzes international spillovers of Hartz IV within a DSGE model, albeit not with search unemployment.…”

Spillover Effects of Labour Market Reforms in a Three-Country World

“…The domestic and foreign effects caused by the reform in the unemployment benefit ratio are only briefly summarised in the following. A more detailed description of reform effects in comparable two-country models is given in Busl and Seymen (2013) …”

“…Felbermayr et al (2013) test the impact of domestic and foreign tax wedges on the domestic unemployment rate. Busl and Seymen (2013) provide an overview of the model-based studies on international effects.…”