Hartz Reforms Research Articles

How to Fight Long-Term Unemployment: Lessons from Germany

The number of long-term unemployed in Germany has stagnated at around one million for several years. Despite excellent labour market conditions, the long-term unemployment rate is well above the OECD average. Therefore, the carrot and stick principle of Hartz reforms is in clear need of further development. The author proposes an overall concept for preventing and reducing long-term unemployment and long-term basic income receipt. An important element is an activation strategy for long-term unemployed and long-term basic income recipients that implies interim target setting and requires more and better trained case managers in the job centres.

Comment on ‘‘Unemployment Compensation and Wages: Evidence from the German Hartz Reforms’’ by Stefan Arent and Wolfgang Nagl

Summary Arent and Nagl (2013) use the BA Employment panel 1998-2007 to identify effects of the German Hartz reform and find that it caused a considerable reduction of wages. Our replication study suggests that their clear and strong conclusions are based on implausible assumptions regarding the error structure of their regression models and on a too coarse modelling of the time effects. They become blurred and weak once better estimates of the standard errors are obtained and the development of wages is investigated at a finer time grid. Furthermore, Arent and Nagl’s reform effects shrink considerably when a more appropriate price index is used to deflate the wages and when the censoring of wages is treated correctly. Methodological considerations suggest that their conclusions depend on several further daring and untested assumptions.

Unemployment Compensation and Wages: Evidence from the German Hartz Reforms – Reply

Unemployment Compensation and Wages: Evidence from the German Hartz Reforms – Reply

Patterns of institutional change in minimum income protection in Sweden and Germany

Germany is generally regarded as a case of qualitative “change” in minimum income protection (MIP) schemes, while Sweden is perceived as one of institutional “inertia”. This paper seeks to qualify this view by embedding developments in MIP in wider policy and governance trends. Empirically, it is based on document analysis and qualitative expert interviews in the two countries. Theoretically, the paper applies recent institutional approaches that address patterns of change in more complex ways. In Sweden, an exclusive focus on formal continuity regarding social assistance would disguise its change in function from temporary security system of last resort into one that permanently provides income protection when neighboring policy fields, unemployment and sickness insurance, are downsized. Conversely, in Germany a merger of social assistance and unemployment assistance took place. Yet an exclusive focus on the Hartz reforms would downplay the degree of continuity that nevertheless exists in the unemployment insurance.

THE SELECTED ISSUES OF LABOUR MARKET POLICY IN GERMANY – IMPLEMENTATION POSSIBILITIES IN POLAND

The author in the article presents the conditionings and the main changes introduced through labour market reforms implemented in Germany since the activity of the Hartz Commission. There were presented the components of all four Hartz Reforms and the directions of its continuation after 2005. The aim of the publication is to determine, which of the German solutions are possible to implement in the Polish economic and social conditionings. The research method undertaken in that paper was the analysis of secondary data – both statistical as well as reports and publications connected with German labour market policy.

The Dynamics of Social Assistance Benefit Receipt in Germany - State Dependence Before and after the 'Hartz Reforms'

In this article, we study state dependence in social assistance receipt in Germany using annual survey data from the German Socio-Economic Panel (SOEP) for the years 1995-2011. We show that there is considerable observed state dependence, with an average persistence rate in benefits of 68% compared to an average entry rate of below 4%. To identify a possible structural component in state dependence, we estimate a series of dynamic random-effects probit models that control for unobserved heterogeneity and endogeneity of initial condition. We find evidence of substantial state dependence in benefit receipt. Our estimates suggest that benefit receipt one year ago raises the likelihood of benefit receipt today by a factor of 3.7. This corresponds to an average partial effect of over 14 percentage points. Average predicted entry and persistence rates are much higher in Eastern Germany than in Western Germany, absolute levels of structural state dependence however are comparable. We do not find evidence for much time variation in state dependence. This holds true also for the time around the Hartz reforms.

Employment effects of Hartz reforms

Die Hartz-IV-Reform ist politisch stark umstritten. Mit ihr werden Gefahrdungen des Lebensstandards bis hin zu Armut verbunden. Gleichzeitig konnte die Bundesrepublik ihre Arbeitslosenquote uber die letzten Jahre so stark senken wie fast kein anderes Land in Europa bzw. der OECD. Welche Rolle spielen die Hartz-Reformen in dieser Erfolgsgeschichte? Andrey Launov und Klaus Walde zeigen, dass die Hartz-IV-Gesetze keinen erwahnenswerten Beitrag zur Reduktion der Arbeitslosigkeit lieferten. Gleichzeitig waren die anderen Reformen, Hartz I bis Hartz III, umso hilfreicher.

The Dynamics of Social Assistance Benefit Receipt in Germany: State Dependence Before and after the 'Hartz Reforms'

In this article, we study state dependence in social assistance receipt in Germany using annual survey data from the German Socio-Economic Panel (SOEP) for the years 1995-2011. We show that there is considerable observed state dependence, with an average persistence rate in benefits of 68% compared to an average entry rate of below 4%. To identify a possible structural component in state dependence, we estimate a series of dynamic random-effects probit models that control for unobserved heterogeneity and endogeneity of initial condition. We find evidence of substantial state dependence in benefit receipt. Our estimates suggest that benefit receipt one year ago raises the likelihood of benefit receipt today by a factor of 3.7. This corresponds to an average partial effect of over 14 percentage points. Average predicted entry and persistence rates are much higher in Eastern Germany than in Western Germany, absolute levels of structural state dependence however are comparable. We do not find evidence for much time variation in state dependence. This holds true also for the time around the Hartz reforms.

Subsidized work before and after the German Hartz reforms: design of major schemes, evaluation results and lessons learnt

AbstractThis review discusses empirical studies on hiring subsidies in the private sector and on schemes directly providing usually public or non-profit sector jobs for the unemployed in Germany. An important effect of hiring subsidies is that they stabilise employment. For employment schemes, results before the Hartz reforms imply mostly negative average treatment effects on regular employment outcomes of the treated, while results are mostly positive after introducing the reforms. During the years 2003 to 2005, the benefit system was radically reformed and now emphasizes mutual obligations. That might be one reason for changes in the effectiveness of job creation schemes.JEL codesH53; J08; J68

Journal for labour market research: special issue PASS

In January 2005 the Social Code Book II came into effect in Germany. It introduced the new unemployment benefit II (Arbeitslosengeld II) as a major element and final stage of a series of labour market reforms termed the Hartz reforms which aimed at flexibilization of the German labour market and granted (re)integration of persons in need into the labour market precedence over pure economic subsidies. The new means tested benefit integrated the former social assistance (a welfare benefit) and the former unemployment assistance for long-term unemployed persons whose entitlement to unemployment insurance payments had expired. Its paradigm is summarized in the slogan “support and challenge” (in German “fordern und fordern”). Support for integration into employment was extended to groups that had formerly been far detached from the labour market. On the other hand status protection regulations were disestablished and pressure on recipients to take up any reasonable employment was increased by the introduction of benefit sanctions and active labour market programmes designed to test work motivation.

Labour Market Segmentation: Standard and Non-Standard Employment in Germany

Abstract Data from the German Socio-Economic Panel provide insight into the relationship between standard and non-standard work, from the perspective of dual labour market theory. We identify two segments that largely correspond to the common distinction between these forms of employment and find substantial differences in the determination of wages, as well as the composition of worker and job characteristics. These differences tend to increase after the Hartz reforms. The estimates also indicate the existence of a primary sector wage premium and job rationing, as well as specific patterns of labour mobility due to (partly non-economic) barriers between segments.

Unemployment Compensation and Wages: Evidence from the German Hartz Reforms

Summary Using the introduction of fixed unemployment assistance in Germany in 2005 as a unique natural experiment, we find strong evidence that decreased unemployment compensation has an adverse effect on wages. We use micro panel data to identify and estimate the effect of this structural break. In eastern and western Germany, the relative effect is higher for women. In western Germany, the relative effect increases with skill level. In eastern Germany, there is no clear skill-specific pattern.

The Aggregate Effects of the Hartz Reforms in Germany

This paper quantifies the impact of the Hartz reforms on matching efficiency, using monthly SOEP gross worker flows (1983-2009). We show that, until the early 2000s, close to 60% of changes in the unemployment rate are due to changes in the inflow rate (job separation). On the contrary, since the implementation of the reforms in the mid-2000s, the importance of the outflow rate (job finding) has been steadily increasing. This indicates that matching efficiency has improved substantially in recent years. Results from an estimated matching function — pointing to efficiency gains of more than 20% — corroborate this finding.

Vouchers and caseworkers in training programs for the unemployed

This paper studies the role of vouchers and caseworkers in training programs for the unemployed. We explore the unique features of the Hartz reform in Germany which simultaneously introduced training vouchers and imposed more selective criteria on participants. This allows us to go beyond the standard approach when we estimate the treatment effects for the most important type of training. Next to assessing the overall impact of the reform on the training’s effectiveness, we isolate the impact induced by changes in the composition of program participants (selection effect) from the impact based on the introduction of vouchers and related institutional changes (institutional effect). Our results show a small positive overall impact of the reform. The decomposition suggests that the selection effect is, if at all, slightly negative, and that the introduction of the voucher and related institutional changes increased both employment and earnings of participants. It furthermore appears that our findings are driven by skilled participants.

Der Rückgang der Langzeitarbeitslosigkeit in Deutschland: Ein Erfolg der Hartz-Reformen oder konjunktureller Effekt?

High and persistent unemployment has been a major problem in Germany for decades. This article presents the theoretical reasons as well as individual and macroeconomic consequences of long-term unemployment. The so called Hartz Reforms aimed at reducing unemployment by reducing inflows and easing the transition from unemployment into employment. We describe the development of stocks and flows on the German labour market in the course of the business cycle between 1998 and 2009. Furthermore, we estimate an empirical matching function to detect the effects of the reforms and the business cycle on aggregate outflows from unemployment into employment. We apply the three stage least squares estimator (3SLS) to our system of equations as we include matching functions for long-term as well as short-term unemployed. For the sake of clarity and intuitive understanding, we model the reforms as time dummy variables and control for a trend that otherwise could also capture reform and other time effects. To learn about the business cycle effects we additionally compare the determinants of matching in two economic expansions by means of an Oaxaca-Blinder decomposition. Our results show that matching efficiency has improved for the long-term unemployed especially after the first two waves Hartz I/II and Hartz III. Thus, the reforms contributed to the observed reduction in long-term unemployment. However, there is no evidence that matches responded more strongly to the economic expansion after the reforms. <bold>Zusammenfassung</bold> Hohe und persistente Arbeitslosigkeit ist seit langem ein Problem in Deutschland. Dieser Artikel verweist auf die theoretischen Hintergründe sowie die individuellen und gesamtwirtschaftlichen Folgen von lang andauernder Arbeitslosigkeit. Die unter Peter Hartz' Namen umgesetzten Reformen zielten darauf ab, den Zustrom in Arbeitslosigkeit zu reduzieren und den Übergang aus Arbeitslosigkeit in Beschäftigung zu beschleunigen. Wir beschreiben zunächst die Entwicklung der Bestandsgrößen und der Stromgrößen des Arbeitsmarkts im Konjunkturzusammenhang von 1998 bis Mitte 2009. Des Weiteren verwenden wir eine empirische Matching-Funktion, um die Effekte der Konjunktur und der Hartz-Reformen auf die aggregierten Abgänge aus Arbeitslosigkeit in Beschäftigung zu schätzen. Da in unserer Schätzung Kurz- und Langzeitarbeitslose in einem Gleichungssystem betrachtet werden, nutzen wir die dreistufige Methode der kleinsten Quadrate (3SLS). Den Ergebnissen zufolge hat sich das Matching aus Langzeitarbeitslosigkeit vor allem nach den Reformen Hartz I/II und Hartz III beschleunigt, somit haben die Hartz-Reformen den Rückgang der Langzeitarbeitslosigkeit begünstigt. Eine stärkere Reaktion der Abgänge aus Arbeitslosigkeit auf die Konjunktur lässt sich nicht nachweisen. Die Reformen werden klar und intuitiv verständlich als Zeitdummy-Variablen modelliert. Für einen Trend, der andernfalls Reform- und sonstige Zeiteffekte auffangen würde, wird kontrolliert. Ob die Konjunktur den Matching-Prozess nach den Reformen anders beeinflusst hat als zuvor, untersuchen wir mittels einer Oaxaca-Blinder-Dekomposition. JEL Classification: E32, J64, J68

‘After Agenda 2010 is before the Elections’: Consolidation, Dissent, and the Politics of German Labour Market Policy under the Grand Coalition

The Grand Coalition of 2005, formed after painful electoral losses, forced both the CDU/CSU and the SPD to retract from the more radical neo-liberal positions of the Leipzig Programme and Agenda 2010 respectively. Yet labour market policy showed no signs of a fresh start and continued in the framework set by the Hartz reform measures, fine-tuning and adjusting them. No comprehensive agreement could be reached on the contested issue of a statutory national minimum wage; instead a fairly limited sector-focused compromise solution was found. However, the ideational commitment of German employers to a more liberal position and the now permanent bifurcation of the labour market point to systemic transformations that are not properly included in most conceptualisations of the German model in the comparative political economy literature.

A Macroeconomic Model for the Evaluation of Labor Market Reforms

We develop a tractable macroeconomic model with employment risk and labor market search in order evaluate the effects of labor market reform on unemployment, growth, and welfare. The model has a large number of risk-averse households who can invest in risk-free physical capital and risky human capital. Unemployed households receive unemployment benefits and decide how much search effort to exert. We present a theoretical characterization result that facilitates the computation of equilibria substantially. We calibrate the model to German data and use the calibrated model economy to simulate the macroeconomic effects of the German labor market reforms of 2005 and 2006 (Hartz Reforms). We find that the 2005-reform had large employment effects: the equilibrium unemployment rate has been reduced by approximately 1.1 percentage points from 7.5 to 6.4 percent. Moreover, the drop in unemployment has led to substantial output gains. Finally, employed and short-term unemployed households experienced significant welfare gains, whereas the long-term unemployed have lost in welfare terms. The effects of the 2006-reform are qualitatively similar, but quantitatively much smaller. We also show that the social welfare maximizing replacement rate is lower than the current (post-reform) replacement rate in Germany. However, implementing the optimal unemployment benefit system generates only small welfare gains.

Nickel and Dimed German Style: The Working Poor in Germany

Using data from the German SOEP, this paper analyses whether there have been (a) any significant changes in poverty rates and poverty intensities before and after the Hartz IV reforms and (b) whether there have been observable changes in the effect of employment in reducing the threat or intensity of poverty. Using multivariate analyses we can find no evidence of increases in poverty rates comparing the time period 2002–2004 with that of 2005-2006. Further we find no change in the effect of employment in reducing the probability and intensity of poverty during this time period. The “working poor” phenomenon in Germany remains relatively small and statistically unchanged by the Hartz reforms.

Did the Hartz Reforms Speed-Up the Matching Process? A Macro- Evaluation Using Empirical Matching Functions

Abstract Starting in January 2003, Germany implemented the first two so-called Hartz reforms, followed by the third and fourth packages of Hartz reforms in January 2004 and January 2005, respectively. The aim of these reforms was to accelerate labor market flows and reduce unemployment duration.Without attempting to evaluate the specific components of these Hartz reforms, this paper provides a first attempt to evaluate the overall effectiveness of the first two reform waves, Hartz I/II and III, in speeding up the matching process between unemployed and vacant jobs. The analysis is conceptually rooted in the flow-based view underlying the reforms, estimating the structural features of the matching process. The results indicate that the reforms indeed had an impact in making the labor market more dynamic and accelerating the matching process.

Party Competition and Reforms of Unemployment Benefits in Germany: How a Small Change in Electoral Demand Can Make a Big Difference

This article shows how party competition has influenced reforms of unemployment benefits in Germany. The existing literature on German labour market policy emphasises institutional factors and predicts policy stability. Consequently, the recent fundamental reforms (‘Hartz reforms’) pose a challenge to previous research. By looking at the spatial configuration of the party system and at policy demand, this article argues that the incremental retrenchments of the 1980s and 1990s were conditioned by centripetal competition and a high degree of welfare consensus, whereas the more radical Hartz reforms were made possible by a limited shift in public opinion in favour of restructuring and the lack of a left-wing counterweight in the party system. Thus, the structure of the party system exacerbated the effect of a demand shift that was only moderate. The analysis is not meant to discard other explanatory factors, rather it intends to demonstrate the relevance of party competition to the study of labour market reforms in Germany and, more generally, to comparative welfare state research.