Which factors were behind Germany's labour market upswing? A data‐driven approach*

Abstract

AbstractGermany has experienced a strong and sustained labour market upswing since the mid‐2000s. While various studies have highlighted different specific reasons for this development, this study contributes to the debate by simultaneously considering a broad set of candidate factors for the upswing in a unified methodological framework and systematically weighing them against each other on an empirical basis. We develop a structural macroeconometric framework that leaves as many of the systematic interlinkages as possible for empirical determination while operating with a minimal set of restrictions in order to identify economically meaningful shocks. For this purpose, we combine short‐ and long‐run restrictions based on established assumptions on labour force development, technological change, and search and matching in the labour market. Matching efficiency, the intensity of job creation, the growing labour force, and the declining propensity to separate explain most of the German labour market upswing.