Hartz IV and the Decline of German Unemployment: A Macroeconomic Evaluation

52 Pages Posted: 16 Mar 2021

See all articles by Brigitte Hochmuth

Brigitte Hochmuth

Friedrich-Alexander-Universität Erlangen-Nürnberg

Britta Kohlbrecher

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

Christian Merkl

Friedrich-Alexander-Universität Erlangen-Nürnberg

Hermann Gartner

Government of the Federal Republic of Germany - Institute for Employment Research (IAB); Friedrich-Alexander-Universität Erlangen-Nürnberg

Multiple version iconThere are 2 versions of this paper

Date Written: 2021

Abstract

This paper proposes a new approach to evaluate the macroeconomic effects of the “Hartz IV” reform, which reduced the generosity of long-term unemployment benefits. We propose a model with different unemployment durations, where the reform initiates both a partial effect and an equilibrium effect. We estimate the relative importance of these two effects and the size of the partial effect based on the IAB Job Vacancy Survey. Our approach does not hinge on an external source for the decline in the replacement rate for long-term unemployed. We find that Hartz IV was a major driver for the decline of Germany’s steady state unemployment and that partial and equilibrium effect were nearly of equal importance. In addition, we provide direct empirical evidence on labor selection, one potential dimension of recruiting intensity.

JEL Classification: E240, E000, E600

Suggested Citation

Hochmuth, Brigitte and Kohlbrecher, Britta and Merkl, Christian and Gartner, Hermann, Hartz IV and the Decline of German Unemployment: A Macroeconomic Evaluation (2021). CESifo Working Paper No. 8933, Available at SSRN: https://ssrn.com/abstract=3805459 or http://dx.doi.org/10.2139/ssrn.3805459

Brigitte Hochmuth (Contact Author)

Friedrich-Alexander-Universität Erlangen-Nürnberg ( email )

Lange Gasse 20
Lange Gasse 20,
Nürnberg, 90403
Germany

Britta Kohlbrecher

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg ( email )

Schloßplatz 4
Erlangen, DE 91054
Germany

Christian Merkl

Friedrich-Alexander-Universität Erlangen-Nürnberg ( email )

Lange Gasse 20
Lange Gasse 20,
Nürnberg, 90403
Germany

Hermann Gartner

Government of the Federal Republic of Germany - Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

Friedrich-Alexander-Universität Erlangen-Nürnberg ( email )

Lange Gasse 20
Lange Gasse 20,
Nürnberg, 90403
Germany

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