Abstract
Since the labor market reforms around 2005, known as the Hartz reforms, Germany has experienced declining unemployment rates. However, little is known about the reforms’ effect on individual life satisfaction of unemployed workers. This study applies difference-in-difference estimations and finds a decrease in life satisfaction after the reforms that is more pronounced for male unemployed in west Germany. The effect is driven by income and income satisfaction, but not by the unemployment rate. Also unemployed persons who exogenously lost their jobs are affected by the reforms. In line with the structure of the reforms, the effect is stronger on long-term and involuntarily unemployed persons.
Highlights
Between January 2003 and January 2005, the German government under Gerhard Schröder, a coalition of Social Democrats and the Green Party, implemented a number of labor market reforms, known as the Hartz reforms
This development was favored by the Hartz reforms through increased job search and concessions of unemployed workers regarding employment conditions and wages, lower wages for displaced workers after they return to work, improved matching efficiency, and decreased duration in unemployment
The current paper adds to the literature on the Hartz reforms the component of happiness
Summary
Between January 2003 and January 2005, the German government under Gerhard Schröder, a coalition of Social Democrats and the Green Party, implemented a number of labor market reforms, known as the Hartz reforms. The reforms increased labor market flexibility (Hartz I–III), and reduced the level and duration of longterm unemployment entitlements (Hartz IV). Long-term unemployment income was made conditional on job search behavior, with increased possibilities of income sanctions. Germany experienced in the following years a steadily declining unemployment rate. This development was favored by the Hartz reforms through increased job search and concessions of unemployed workers regarding employment conditions and wages, lower wages for displaced workers after they return to work, improved matching efficiency, and decreased duration in unemployment
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