The German Labor Market Reforms and Post-Unemployment Earnings

27 Pages Posted: 31 Aug 2015

See all articles by Niklas Engbom

Niklas Engbom

New York University (NYU); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Enrica Detragiache

International Monetary Fund (IMF) - European Department

Faezeh Raei

International Monetary Fund (IMF)

Date Written: July 2015

Abstract

In 2003–05, Germany undertook extensive labor market reforms which were followed by a large and persistent decline in unemployment. Key elements of the reforms were a drastic cut in benefits for the long-term unemployed and tighter job search and acceptance obligations. Using a large confidential data set from the German social security administration, we find that the reforms were associated with a fall in the earnings of workers returning to work from short-term unemployment relative to workers in long-term employment of about 10 percent. We interpret this as evidence that the reforms strengthened incentives to return to work but, in doing so, they adversely affected post re-entry earnings.

Keywords: labor market, workers, labor, unemployment benefits, Unemployment: Models, Duration, Incidence, and Job Search, Germany.,

JEL Classification: E21, J64, J65

Suggested Citation

Engbom, Niklas and Detragiache, Enrica and Raei, Faezeh, The German Labor Market Reforms and Post-Unemployment Earnings (July 2015). IMF Working Paper No. 15/162, Available at SSRN: https://ssrn.com/abstract=2653615

Niklas Engbom (Contact Author)

New York University (NYU) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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National Bureau of Economic Research (NBER) ( email )

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Enrica Detragiache

International Monetary Fund (IMF) - European Department ( email )

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United States

Faezeh Raei

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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