Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/223742 
Year of Publication: 
2020
Series/Report no.: 
IZA Discussion Papers No. 13300
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
We use linked longitudinal data on employers and employees to estimate how the 2003-2005 Hartz reforms affected the wages of displaced German workers after they returned to work. We also present a simple new method to decompose the wage effects into components attributable to selection on unobservables, and to changes in the way that displaced workers are sorted across firms and worker-firm matches upon re-employment. We find that the Hartz reforms substantially reduced the wages of displaced workers after their return to work. Women experienced smaller wage losses than men. For both sexes, over 80 percent of the increased wage loss was because displaced workers found re-employment in lower-wage firms after the reforms. A disproportionate share of these low-wage firms offer temporary employment services to other firms, and we document a large increase in post-displacement employment in the temporary work sector after the reforms. Sorting into worse matches with employers explains a smaller 5-9 percent of the wage loss experienced by men, and 12.5-23 percent of the female wage loss. Collectively, the sorting and matching channels explain almost all of the Hartz reforms' effect on post-displacement wages.
Subjects: 
Hartz reforms
displacement
unemployment insurance
reallocation
sorting
matching
selection
linked employer-employee data
fixed effects
JEL: 
J65
J64
J62
J68
J63
J31
C23
Document Type: 
Working Paper

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