Working Paper: CEPR ID: DP13328
Authors: Moritz Kuhn; Philip Jung; Benjamin Hartung
Abstract: A key question in labor market research is how the unemployment insurance system affects unemployment rates and labor market dynamics. We revisit this old question studying the German Hartz reforms. On average, lower separation rates explain 76% of declining unemployment after the reform, a fact unexplained by existing research focusing on job finding rates. The reduction in separation rates isheterogeneous, with long-term employed, high-wage workers being most affected. We causally link our empirical findings to the reduction in long-term unemployment benefits using a heterogeneous-agent labor market search model. Absent the reform, unemployment rates would be 50% higher today.
Keywords: unemployment insurance; labor market flows; endogenous separations
JEL Codes: E24; J63; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unemployment insurance reform (J65) | reduction in separation rates (J12) |
| reduction in separation rates (J12) | decline in unemployment rates (J64) |
| unemployment insurance reform (J65) | decline in unemployment rates (J64) |
| reduction in separation rates (J12) | increase in job finding rates (J68) |