Timo Sauerbier (FAU Erlangen-Nürnberg)
Christian Merkl
Since the mid-2000s, the German labor market reacts in very resilient fashion to aggregate shocks. Despite having been hit by the two most severe post-war recessions in 2008/09 and 2020, unemployment barely increased. This paper analyzes the connection between resilience and labor market institutions. We show that the combination of stronger activation of searching workers and lower unemployment benefits (as part of the Hartz labor market reforms) reduced labor market responses to aggregate shocks by more than 60 percent. Our quantitative analysis is based on a dynamic search and matching model with a private and public search channels as well as endogenous separations. We disentangle the role of activation, lower benefits and short-time work for Germany's labor market resilience.