The Hartz reforms, the German Miracle, and labor reallocation

Abstract

We analyse the recent history of unemployment and labor reallocation in the German economy using a variant of Lucas and Prescott's (1974) reallocation model, modified to include unemployment benefits, rest unemployment, and aggregate shocks. We focus on the implied effects of the Hartz reforms and the Great Recession the model, and compare them with the corresponding movements in German data. We find that the model's qualitative predictions for reallocation and unemployment correspond well with the observations. When we calibrate the model to assess its quantitative performance, however, we find that it significantly overestimates the changes of both reallocation and unemployment since the introduction of the Hartz reforms.JEL Codes: E24, E43, E65, J24, J62, J65

Hartz IV and the decline of German unemployment: A macroeconomic evaluation

“…Bauer/King (2018) analyse the effects of the Hartz reform on labour reallocation.3 Given that we do not take into account separations, our numerical analysis constitutes a lower bound for the aggregate effects of the Hartz IV reform.4 See Figure E.5 in Appendix E for descriptive empirical evidence based on the IAB Job Vacancy Survey. A substantial fraction of employers answers that Hartz IV has decreased workers' reservation wages.5 For expositional simplicity, we refer to firms throughout the paper.IAB-DiscussionPaper 3/2019 6…”

The German labor market during the Great Recession: Shocks and institutions

“…The authors argue that the Hartz reforms and the Great Recession had offsetting effects in the reallocation dimension. Although Bauer and King (2015) focus on a completely different dimension of the data, it is reassuring that (similar to us) they show an important interaction between Great Recession and Hartz reforms.…”

“…The only structural paper on the interaction of the Hartz reforms and the Great Recession we are aware of is Bauer and King (2015). Their paper focuses on the puzzling fact that reallocation across occupations was very stable over time, although steady state unemployment declined very strongly.…”

Ethnic identities, public spending and political regimes

“…Lastly, although the model predicts an unambiguous reduction in expected turnover, due to its partial nature the model cannot quantify the contribution of working time accounts to gross labour reallocation. Literature suggests that low job destruction during the Great Recession in Germany is at least partly due to structural reforms that took place in2003- 2005 (see e.g Bauer and King, 2018;Hartung et al, 2018;Carrillo-Tudela et al, 2019),. so the impact of working time accounts needs to be evaluated conditional on these reforms.…”