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

Hochmuth, BrigitteORCID: https://orcid.org/0000-0002-2379-8946; Kohlbrecher, Britta; Merkl, Christian and Gartner, Hermann (March 2021) Hartz IV and the Decline of German Unemployment: A Macroeconomic Evaluation. IHS Working Paper Series 31, 49 p.

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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.

Item Type:	IHS Series
Keywords:	Unemployment benefits reform, search and matching, Hartz reforms
Funders:	DFG (grant number ME-3887/5-1), Hans-Frisch-Stiftung
Classification Codes (e.g. JEL):	E24, E00, E60
Research Units:	Former Research Groups (until 2022) > Regional Science and Environmental Research
Date Deposited:	10 Mar 2021 13:03
Last Modified:	07 Dec 2023 09:16
URI:	https://irihs.ihs.ac.at/id/eprint/5705

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