Macroeconomic Evaluation of Labor Market Reform in Germany
February 13, 2013
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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
Pages:
42
Volume:
2013
DOI:
Issue:
042
Series:
Working Paper No. 2013/042
Stock No:
WPIEA2013042
ISBN:
9781589062702
ISSN:
1018-5941
