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 in Germany. Unemployment fell because the Hartz
reforms induced a large fraction of the long-term unemployed to deregister as jobseekers
and appear as non-participants. Female labour force participation increased because they
accepted the low-paid, part-time jobs that were o ered in quantity in absence of a universal
minimum wage. Male non-participation increased as they were less inclined to take up parttime
jobs. Counterfactual analyses show that job destruction also fell in the early 2000s,
which is less easily attributable to the labour market reforms. A calibrated search-matching
model shows that labour market reforms and wage moderation were equally responsible for
the fall of unemployment and should not have produced the observed reduction of full-time
work. Our model produces correct predictions by increasing the cost of vacancy creation,
which likely originates from weak demand in the context of the nancial crisis.