The Hartz Reforms and the German Economic Miracle

Labour market reforms that reduced unemployment benefits, improved public job intermediation and relaxed regulations on temporary help agencies or marginal employment have been key to the German labour market ‘miracle’.

That is the conclusion of research by Michael Burda and Stefanie Seele, to be presented at the annual congress of the European Economic Association in Geneva in August 2016.

These policies – known as the Hartz reforms – were introduced between 2003 and 2005, and were aimed at encouraging more people into work. Since that date, employment has risen 10% and unemployment declined by half, even though there has been a global economic crisis. But many argue that Germany’s flexible labour market institutions were the most important factor in the country’s continued employment growth.

The authors show that Germany’s employment growth has been almost entirely due to people entering the workforce, not simply more hours worked. They conclude: ‘The Hartz reforms were essential because they mobilised inactive workers and reallocated a relatively stable level of working hours across a shrinking working age population.’