Hartz Reforms Research Articles

The productivity effects of labor market deregulation: evidence from German firms during 2010–2019

Abstract In the early 2000s, the German government introduced the Hartz reforms, which deregulated German labor markets. These reforms were praised internationally as striking a balance between job growth and productivity growth. While macroeconomic research has shown that the reforms have indeed lowered German unemployment, their effects on labor productivity need to be better understood. This paper addresses the impact of temporary agency work (TAW) on German labor productivity during 2010–2019, based on data from a firm-level panel of the German Institute for Employment Research (IAB). It contributes to the rising number of firm-level studies by extending their results in a broader temporal perspective, during which TAW intensities have increased substantially, especially in TAW-using firms. The system generalized method of moment (GMM) estimations based on a firm-level data set with 13,197 observations for the period 2010–2019 show that a robust hump-shaped relationship exists between the extent of TAW and the firms’ labor productivity. We find that the increase in the use of TAWs following the Hartz reforms has, on average, positively contributed to labor productivity growth in German firms. However, the findings also show that if numerical flexibility is increased too much, productivity growth in Germany will suffer. This is particularly the case for several industrial sectors that are important in the German economy. These results are important given recent calls for more labor market flexibility to help firms grow in an increasingly turbulent global economy.

Reasons for the Successful German Economy: Analysis of Imports and Exports, Labor and Social Welfare

Germanys robust economy, labor market reforms, expansive social welfare initiatives, and the structure of its educational system collectively contribute to its status as an influential and appealing nation on the global stage. The paper analyzes the reasons for the booming German economy from three aspects: imports and exports, labor, and social welfare. The nation has witnessed substantial export growth, particularly compared to its European counterparts. This economic achievement can be attributed to elements like practicing wage restraint and capitalizing on the opportunities presented by Chinas market liberalization, resulting in a significant upswing in exports to China. The labor market in Germany has witnessed substantial enhancements since 2005, marked by the creation of jobs and a remarkable reduction in the unemployment rate. These transformations can be linked to labor market reforms initiated in the early 2000s, commonly called the Hartz reforms. Germany boasts an extensive social welfare system with historical roots dating back to the 19th century. This system encompasses various life facets, including healthcare, pension provisions, accident coverage, nursing care, and unemployment support. The adaptability of this welfare system is underscored as it remains open to ongoing negotiations and adjustments, particularly in response to demographic shifts.

A New Measure of Wage Risk: Occupation-Specific Evidence for Germany

This study proposes a new measure of wage risk based on estimated probabilities to earn an hourly wage that is below some specific lower quantile of the wage distribution. Using the German SOEP as an information rich data base, we determine wage risks overall and for nine job categories during the period from 1992 until 2015. We find that the low-wage workers in Germany are worse off after the Hartz reforms. In Western Germany this evidence stems from both a reduction of low wages and an increase of wage risk. In Eastern Germany, it is largely due to increased wage risk. Moreover, overall evidence hides important developments at the occupational level.

The determinants of displaced workers’ wages: Sorting, matching, selection, and the Hartz reforms

We present a simple new method to decompose the wage effects of displacement into components due to differences in the way that displaced and non-displaced workers are sorted across higher- and lower-paying employers (a sorting effect), differences in the quality of worker–employer matches that they enter into (a matching effect), and differences in their unobservable characteristics (a selection effect). In an extended application, we apply our decomposition to understand how the determinants of displaced workers’ wages in Germany changed following the 2003–2005 Hartz reforms. We find that the wages of displaced workers fell substantially after the reforms, and that over 80 percent of the decline was because they found re-employment at lower-paying employers. Sorting into worse matches explains a smaller 5–9 percent of the wage decline experienced by men, and 12–23.5 percent of the female wage decline. Collectively, the sorting and matching channels explain almost all of the post-reform decline in displaced workers’ wages, and selection played little role.

The effects of German economic and political progress on the Sparkassen savings bank system

Since the end of World War II, the German banking system underwent many dramatic changes, however, the Sparkassen movement has remained in its current form since 1778. Through its localised structure, it has continued to act as a cornerstone of the German economy, accounting for over a third of banking assets since 1945. This system maintained a considerable presence throughout fragile political movements after the collapse of National Socialism, the reunification of the German state and the implementation of significant economic redevelopment such as the national ‘Hartz Reforms’. We test these inferences with evidence from the Sparkassen system’s influence on German savings, lending, and such relationships with real wage growth. We confirm that for much of the post-war era, savings banks have been more stable over time when placed in comparison with commercial banks. We identify a causal link between wages and balance sheets that exist in savings banks and not in commercial banks throughout the post-war era.

The fall in german unemployment: A flow analysis

In this paper we investigate the recent fall in unemployment, and the rise in part-time work and labour market participation among prime-aged Germans. We show that unemployment fell because the Hartz reforms induced a large fraction of the long-term unemployed to deregister as jobseekers. However, labour force participation actually increased because many female non-participants accepted low-paid, part-time jobs. Counterfactual simulations using estimated transition probabilities show that observed changes in the stocks of registered and unregistered unemployment after 2002 essentially resulted from changes in their outflows. These changes are also the main determinants of the dynamics of the stocks of marginal, contributing part-time and full-time employment after 2002. Yet the full decrease in registered male unemployment cannot be explained by the reforms alone.

Hartz and Minds: Happiness Effects of Reforming an Employment Agency

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.

Have Macron’s Recent Labour Reforms Been as Impactful as Past German Reforms?

Structural reforms can sometimes take many years for the effects to be visible in economic data: but one area where impacts can manifest more swiftly is the labour market. In particular, Germany’s experience in the mid-2000s is often cited as a clear example of how macroeconomic dynamics can shift relatively swiftly if the reforms are effective. More recently, France has seen a number of structural reforms, driven by President Macron’s desire to revitalize the French economy after his 2016 election. This paper examines the macroeconomic impact of recent French labour market reforms, comparing and contrasting this impact against the German experience in the 2000s. If idiosyncratic policy changes were a significant driver of labour market dynamics, then empirical outcomes should be different for those countries experiencing policy changes, relative to their peers. Using a variety of different statistical techniques, we find that – while there is clear evidence of the German labour market outperforming its peers when the Hartz reforms were enacted – there is no sign of the French labour market doing so under Macron’s presidency.

The Effects of German Economic and Political Progress on the Sparkassen Savings Bank System

Since the end of World War II, the German banking system underwent many dramatic changes, however, the Sparkassen movement has remained in its current form since 1778. Through its localised structure, it has continued to act as a cornerstone of the German economy, accounting for over a third of banking assets since 1945. This system maintained a considerable presence throughout fragile political movements after the collapse of National Socialism, the reunification of the German state and the implementation of significant economic redevelopment such as the ‘Hartz Reforms’. We test these inferences with evidence from the Sparkassen system’s influence on German savings, lending and such relationships with real wage growth. We confirm that for much of the post-war era, savings banks have been more stable over time when placed in comparison with commercial banks. We identify a causal link between wages and balance sheets that exist in savings banks and not in commercial banks throughout the post-war era.

Reevaluating the German labor market miracle

AbstractFrom 2003 to 2018, employment in Germany increased by 7.3 million, or by 19.3 % – growth not observed since unification. This “labor market miracle” was marked by a persistent and significant expansion of both part-time and low-wage jobs and a deterioration in pay for these jobs, while total hours hardly increased; overall wage growth returned only after 2011. These developments followed in the wake of the landmark Hartz reforms (2003–2005). A modified framework of Katz and Murphy (1992) predicts negative correlation of wages with both relative employment and participation across cells in the period following these reforms. In contrast, wage moderation alone should generate positive association of wages and participation. Our findings are most consistent with a persistent, positive labor supply shock at given working-age population in a cleared labor market. An alternative perspective of labor markets, the search and matching model, also points to the Hartz IV reforms as the central driver of the German labor market miracle.

The Effect of the Hartz Labor Market Reforms on Post-Unemployment Wages, Sorting, and Matching

We use linked longitudinal data on employers and employees to estimate how the 2003-2005 Hartz reforms affected the wages of displaced German workers after they returned to work. We also present a simple new method to decompose the wage effects into components attributable to selection on unobservables, and to changes in the way that displaced workers are sorted across firms and worker-firm matches upon re-employment. We find that the Hartz reforms substantially reduced the wages of displaced workers after their return to work. Women experienced smaller wage losses than men. For both sexes, over 80 percent of the increased wage loss was because displaced workers found re-employment in lower-wage firms after the reforms. A disproportionate share of these low-wage firms offer temporary employment services to other firms, and we document a large increase in post-displacement employment in the temporary work sector after the reforms. Sorting into worse matches with employers explains a smaller 5-9 percent of the wage loss experienced by men, and 12.5-23 percent of the female wage loss. Collectively, the sorting and matching channels explain almost all of the Hartz reforms' effect on post-displacement wages.

O desenvolvimento do mercado de trabalho alemão após a Segunda Guerra Mundial

A evolução do mercado de trabalho na Alemanha foi marcada por dois choques: a reunificação alemã no início dos anos 90; e as reformas de Hartz no início dos anos 2000. O mercado de trabalho alemão se dividiu em dois segmentos: o tradicional mercado de trabalho corporativista, caracterizado por um alto grau de coordenação, e o novo segmento do mercado de trabalho, menos regulamentado. Este último é caracterizado por baixos salários e más condições de trabalho. Um precariado vivendo sob condições de alta incerteza se desenvolveu. Todos esses desdobramentos são principalmente o resultado de mudanças no ordemento legal na Alemanha. No que se refere à criação de empregos, essas mudanças foram ineficazes.

Opportunities or Tensions: Assessing French Labour Market Reforms from 2012 to 2018

This article provides an overview and critical assessment of the intense efforts made to reform French labour market institutions and labour law during the Presidency of François Hollande (2012–2017) and the first eighteen months of the Presidency of Emmanuel Macron. It focuses on the provisions of the El Khomri Act of 2016, the Macron Orders of 2017 and the 2018 Act reforming lifelong learning institutions. The article identifies a strong continuity between the two presidencies, except for the 2018 lifelong learning reform which aims at introducing real change. Compared to the German Hartz reforms of 2002–2005 (similar in scope and importance), and situating European reform strategies within a range of policy options, the article argues that the French reforms correspond to a particular version of ‘flexicurity’, characterized by strong State involvement in labour market policies but also leaning increasingly towards flexibilization and individualization. The article ends by highlighting the limits of the French strategy, especially in the context of slow growth and social unrest in 2018–2019, and outlines a number of principles and orientations that may lead to more efficient and acceptable policies.

Unemployment Compensation and Wages: A Difference-in-Differences Approach to Assessing the Wage Effects of the German Hartz Reforms

Abstract This paper examines the influence of the level of unemployment assistance (Arbeitslosengeld II) on the wage level by exploiting a quasi-natural experiment formed by the German Hartz reforms in 2005. Estimations are based on data from the Socioeconomic Panel ranging from 2000 to 2007. As dependent variables both real monthly gross salary and real hourly gross wage are used. Firstly, following the approach taken by Arent and Nagl (2013, Unemployment Compensation and Wages: Evidence from the German Hartz Reforms. Jahrbücher für Nationalökonomie und Statistik 233 (4): 450–466), a before-after estimator is applied. Secondly, in contrast to the replication study by Ludsteck and Seth (2014, Comment on „Unemployment Compensation and Wages: Evidence from the German Hartz Reforms“ by Stefan Arent and Wolfgang Nagl. Jahrbücher für Nationalökonomie und Statistik 234 (5): 635–644) a control group is constructed and a difference-in-differences estimator (DiD) is used for further assessment. The results of the before-after estimation indicate a negative influence of the unemployment assistance reform on wages. However, the corresponding placebo regressions cast doubt on whether the estimated effect is a policy effect. The DiD approach shows that substantial time effects exist. This indicates that the before-after estimator is not suitable for assessing the policy effect. Applying the DiD estimator, a negative significant policy effect is only identified for men in West Germany.

Labor market reforms: An evaluation of the Hartz policies in Germany

How do workers and firms respond to comprehensive labor market reforms? We use detailed micro data to analyze the German Hartz Reforms through the lens of a structural model of the labor market. These reforms aimed at reducing unemployment, by increasing working hour flexibility, job matching and work incentives. In our setting, reforms directly affect the model parameters, which are estimated using matched data on 430,000 workers in 340,000 firms. Contrary to previous findings, our analysis shows that, although the reforms shortened the typical duration of unemployment, they did not reduce unemployment as a whole and led to a decline in wages. Low-skilled workers suffered the most in terms of employment and wage losses. Furthermore, we decompose the contribution of each reform wave to employment and wage changes, finding that the reduction in generosity of unemployment benefits was the principle driver in reducing wages.

Are Labour Market Reforms the Answer to Post-Euro-Crisis Management? Reflections on Germany’s Hartz Reforms

This article is an attempt to clarify the effects of the German labour market reforms, commonly known as the Hartz reforms. Competing arguments were used to identify the welfare implications for German society and the German economy in order to explore whether or not such labour market reforms might provide another German answer, following fiscal discipline, to the EU’s post-euro-crisis management. This paper confirms that the Hartz reforms effectively reduced German unemployment, but they did not fundamentally solve the problem. Moreover, such effects appeared to propagate an increase in size of the low-paid sector, declining wages and increasing income inequality. The reforms were not welfare-enhancing for individuals because of increased poverty levels in employment and unemployment, which further implied a counter-productive risk for the German economy because of the contraction of domestic consumption, and potential social instability for German society because of rising inequality and deteriorating living standards. Therefore, Hartz-style reforms are neither a desirable model for other EU countries, nor the answer to Europe’s post-euro-crisis management in a time of fiscal austerity and negative interest rates. The real danger to European integration, as argued in this article, is not the challenge from high unemployment, but from Germany’s complacency of a one-size-fits-all thinking and, being the EU’s leading country, its double standards towards and ignorance of the differential nature and contexts of the European unemployment issue compared with the German one. This article warns that the mishandling of labour market reforms could result in the collapse of the already fragile public confidence in European integration.

Employment Policies in UK and Germany. An Important Aspect of Welfare State: The Labour Market

The 1997 was an important year because, for the first time, in a treaty (Amsterdam treaty) was created a special section for the employment policies. From this moment on, employment policies become an important area of community interest. The analysis is based on the assumption that long-term unemployment has detrimental effects on individuals employability. In particular active labour market policies aim at ensuring full employment and equall access to the labour market for both man and women. So childcare facilities, health services and housing support are examples of new integration instruments, which complement classic labour market measures, for example vocational training and job counseling. Employment policies are important issues because they are associated with social outcomes and behaviors, so associated also with high levels of social cohesion. Precarious workers tend to participate less both socially and politically, which means a reduction of social and political participation. They also have less trust in the institutions and this is very serious because trust is the main component of social capital, in a comparative perspective. The purpose of this paper is to analyze, after lessons, readings of documents and articles, the employment policies of welfare state systems, with particular attention to the English and German areas. Particular importance is given to the policies of Tony Blair, his Third Way, and the Work Programme, in the English context, and to the Hartz reform, in the German context.

Economic miracle, political disaster? Political consequences of Hartz IV

The German Hartz IV reform has been a far-reaching labour market reform which reduced unemployment benefit generosity. The encompassing economic evaluation tends to confirm that the reform was an initial spark for the improvement of German labour market performance. At the same time, welfare state scholars have recently expressed concerns that such reforms may have far-reaching and detrimental political effects. In this article, I contribute to this discussion and analyse the political effects of Hartz IV including decreasing satisfaction with democracy, decreasing political participation and an increase of protest voting and political polarization. To identify the effect of the reform, I rely on bi-weekly representative survey data and exploit the announcement of the Hartz reforms as natural experiment. Comparing political attitudes of persons interviewed immediately before and after the announcement in regression analyses confirms that there was a sharp drop in satisfaction with democracy and the intention to participate in the next election, as well as increasing affinity to non-established and left-wing parties. Supplementary analyses show that the effect is stronger for unemployed workers who are more directly affected by the reform. These results are robust to different model specifications and estimation techniques. Moreover, placebo tests for past and previous years refute the concern that the effect is driven by other factors such as calendar time effects. These findings indicate that the political consequences of welfare state retrenchment go far beyond electoral punishment. This is possibly more relevant today than ever before as the current increase of populist parties substantially impedes the functioning of political systems in modern democracies.

The Hartz reforms and the German labor force

The Hartz reforms and the German labor force

The Hartz reforms, the German Miracle, and labor reallocation

We analyse the recent history of unemployment and labor reallocation in the German economy using a variant of Lucas and Prescott’s (1974) reallocation model, modified to include unemployment benefits, rest unemployment, and aggregate shocks. We focus on the implied effects of the Hartz reforms and the Great Recession in the model, and compare them with the corresponding movements in German data. We find that the model’s qualitative predictions for reallocation and unemployment correspond well with the observations. When we calibrate the model to assess its quantitative performance, however, we find that it significantly overestimates the changes of both reallocation and unemployment since the introduction of the Hartz reforms.