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Macroeconomic Evaluation of Labor Market Reform in Germany
Author:
Mr. Tom Krebs
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and
Mr. Martin Scheffel null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2013: Issue 042
Language:
English
Publication Date:
13 Feb 2013
DOI:
https://doi.org/10.5089/9781589062702.001
ISBN:
9781589062702
ISSN:
1018-5941
Pages:
42
Keywords:
WP; Labor Market Reform; Unemployment; Welfare; Hartz IV reform; effects of Hartz IV; unemployment effect; macroeconomics shock; production function; output-unemployment elasticity; hart IV; depreciation rate; unemployment benefit system; unemployment reduction; Unemployment rate; Unemployment benefits; Human capital; Labor markets; Europe
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund