2018 Discussion papers
School of Economics Discussion Paper 18/05
The Fall in German Unemployment:
A Flow Analysis
Carlos Carrillo-Tudela, University of Essex, CEPR, CESifo and IZA
Andrey Launov, University of Kent, CESifo and IZA
Jean-Marc Robin, Sciences Po and UCL
In this paper we investigate the recent fall in unemployment, and the rise in part-time work, labour market participation, inequality and welfare in Germany. Unemployment fell because the Hartz IV reform induced a large fraction of the long-term unemployed to deregister as jobseekers and appear as non-participants. Yet, labour force participation increased because many unregistered-unemployed workers ended up accepting low-paid part-time work that was offered in quantity in absence of a universal minimum wage. A large part of the rise in part-time work was also due to the tax benefits Hartz II introduced to take up a mini-job as secondary employment. This has provided an easy way to top-up labour income staggering under the pressure of wage moderation. The rise in part-time work led to an increase in inequality at the lower end of income distribution. Overall we find that Germany increased welfare as unemployment fell.
JEL Classification: J21; J31; J63; J64
Keywords: Unemployment; part-time work; mini-jobs; non-participation; multiple job
holding; income inequality; Germany; Hartz reforms
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