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What Accounts for the German Labor Market Miracle? A Structural VAR Approach

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  • Klein, Mathias
  • Schiman, Stefan

Abstract

This study examines the driving forces behind the strong decline in German unemployment from 2005 onwards and the exceptionally small increase during the Great Recession. Structural vector autoregressions (VARs) with sign restrictions show that wage moderation in the aftermath of labor market reforms was the dominant factor of the unemployment decline, and that improved matching and shrinking labor supply also contributed to it. The adjustment to business cycle shocks (Great Recession), on the other hand, is to a large extent borne by the intensive margin, which can be explained by institutional aspects of the German labor market.

Suggested Citation

  • Klein, Mathias & Schiman, Stefan, 2023. "What Accounts for the German Labor Market Miracle? A Structural VAR Approach," Macroeconomic Dynamics, Cambridge University Press, vol. 27(3), pages 794-825, April.
    • Handle: RePEc:cup:macdyn:v:27:y:2023:i:3:p:794-825_9
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