Macroeconomic Evaluation of Labor Market Reform in Germany

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URL:	https://ub-madoc.bib.uni-mannheim.de/32929
URN:	urn:nbn:de:bsz:180-madoc-329297
Dokumenttyp:	Arbeitspapier
Erscheinungsjahr:	2012
Titel einer Zeitschrift oder einer Reihe:	Working Paper Series
Band/Volume:	12-23
Ort der Veröffentlichung:	Mannheim
Sprache der Veröffentlichung:	Englisch
Einrichtung:	Fakultät für Rechtswissenschaft und Volkswirtschaftslehre > Makroökonomik u. Wirtschaftspolitik (Krebs 2006-)
MADOC-Schriftenreihe:	Department of Economics > Working Paper Series
Fachgebiet:	330 Wirtschaft
Fachklassifikation:	JEL: E21 , E24 , D52 , J24,
Freie Schlagwörter (Englisch):	Labor Market Reform , Unemployment , Welfare
Abstract:	In 2005 the German government implemented the so-called Hartz IV reform, which amounted to a complete overhaul of the German unemployment insurance system and resulted in a significant reduction in unemployment benefits for the long-term unemployed. In this paper, we use an incomplete-market model with search unemployment to evaluate the macro-economic and welfare effects of the Hartz IV reform. We calibrate the model economy to German data before the reform and then use the calibrated model economy to simulate the effects of Hartz IV. In our baseline calibration, we find that the reform has reduced the long-run (noncyclical)unemployment rate in Germany by 1.4 percentage points. We also find that the welfare of employed households increases, but the welfare of unemployed households decreases even with moderate degree of risk aversion.