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Princeton University (Engbom) and IMF European Department (Detragiache and Raei). The paper was prepared while Niklas Engbom was a Summer Intern at the IMF. We thank Tom Krebs, Sabine Klinger, as well as seminar participants at the IMF Research Department, the Princeton University Labor Lunch Series, the Princeton University Public Finance Workshop, and the IMF-University of Bonn International Conference on Labor Markets in/after Crises.
Mortensen and Pissarides (1999) attributes differences in unemployment rates (and wage inequality) between European and other OECD countries to skill-biased technological progress, high unemployment benefits, and large firing costs. Blanchard et al. (1997) links the high European unemployment in the 70s to adverse labor supply shifts (lack of adjustment of wages to declining productivity) and to subsequent labor demand shifts in the 80s (technological bias against labor) that led to an increase in capital share and continued rise in unemployment.
Prior to 2000, someone could receive UA without previous eligibility for UB, but this was abolished in 2000.
UB or UA benefits below the SA benefit level were topped up.
Although the GSOEP asks for labor market status in each of the previous 12 months, this is arguably subject to significant recall bias. Moreover, income variables are only recorded at the annual level.
For instance, with annual data we might misclassify an employment-unemployment-employment transition as a job-to-job transition if the intermediary unemployment spell falls entirely within the year.
Workers older than 62 are excluded from the sample since they are not covered by the SIAB.
With earnings data averaged across overlapping time periods, regression residuals are serially correlated by construction, but this is not a problem since we are clustering residuals at the level of the individual worker.
To construct earnings at t we need data from t to t + 11, so we use also 2003 and 2010.
Since we use data for months t to t + 11 to construct the measure of earnings at date t, our pre-Hartz group includes data through 2003 and our post-Hartz group data through 2010.
We do not include those who return to mini-jobs since data for these workers are only available from 1999 onwards (results including them for the later years are similar, though).
Because we now need three years of subsequent data for each observation, for this regression we exclude 2008–2010 from the estimation. Excluding this period from the previously reported baseline regression does not affect our earlier results, so the observed differences are not due to difference in the sample period.