Macroeconomic Evaluation of Labor Market Reform in Germany


Krebs, Tom ; Scheffel, Martin


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URL: https://ub-madoc.bib.uni-mannheim.de/32929
URN: urn:nbn:de:bsz:180-madoc-329297
Document Type: Working paper
Year of publication: 2012
The title of a journal, publication series: Working Paper Series
Volume: 12-23
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > VWL, insbes. Makroökonomik u. Wirtschaftspolitik (Krebs)
MADOC publication series: Department of Economics > Working Paper Series
Subject: 330 Economics
Classification: JEL: E21 , E24 , D52 , J24,
Keywords (English): 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.

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Krebs, Tom ; Scheffel, Martin (2012) Macroeconomic Evaluation of Labor Market Reform in Germany. Open Access Working Paper Series Mannheim 12-23 [Working paper]
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