Macroeconomic Evaluation of Labor Market Reform in Germany

February 13, 2013

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Format: Chicago

Tom Krebs, and Martin Scheffel. Macroeconomic Evaluation of Labor Market Reform in Germany, (USA: International Monetary Fund, 2013) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Expenditure, Human capital, Labor, Labor markets, Unemployment, Unemployment benefits, Unemployment rate

Keywords: Depreciation rate, Effects of Hartz IV, Europe, Hart IV, Hartz IV reform, Human capital, Labor Market Reform, Labor markets, Macroeconomics shock, Output-unemployment elasticity, Production function, Unemployment, Unemployment benefit system, Unemployment benefits, Unemployment effect, Unemployment rate, Unemployment reduction, Welfare, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/042
Stock No:

WPIEA2013042
ISBN:

9781589062702
ISSN:

1018-5941

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