Band 21, Heft 2

From 2003 to 2018, employment in Germany increased by 7.3 million, or by 19.3 % – growth not observed since unification. This “labor market miracle” was marked by a persistent and significant expansion of both part-time and low-wage jobs and a deterioration in pay for these jobs, while total hours hardly increased; overall wage growth returned only after 2011. These developments followed in the wake of the landmark Hartz reforms (2003–2005). A modified framework of Katz and Murphy (1992) predicts negative correlation of wages with both relative employment and participation across cells in the period following these reforms. In contrast, wage moderation alone should generate positive association of wages and participation. Our findings are most consistent with a persistent, positive labor supply shock at given working-age population in a cleared labor market. An alternative perspective of labor markets, the search and matching model, also points to the Hartz IV reforms as the central driver of the German labor market miracle.

We model the evolution of the number of individuals reported sick with COVID-19 in Germany. Our theoretical framework builds on a continuous time Markov chain with four states: healthy without infection, sick, healthy after recovery or despite infection but without symptoms, and deceased. Our quantitative solution matches the number of sick individuals up to the most recent observation and ends with a share of sick individuals following from infection rates and sickness probabilities. We employ this framework to study inter alia the expected peak of the number of sick individuals in Germany in a scenario without public regulation of social contacts. We also study the effects of public regulations. For all scenarios we report the expected end date of the CoV-2 epidemic.

Germany reintroduced parity funding of the statutory health insurance scheme in January 2019 by lowering the contribution rates for employees and raising those for employers, leaving the total rate constant. This reduces the tax wedge between total labour costs and net wages. After a small demand impulse on impact, followed by a small downturn in the first two years after implementation, an estimated New Keynesian DSGE model indicates small positive long-run output and employment effects. However, the reduced tax wedge leads to lower public revenues. Aggregate macroeconomic and welfare effects will depend on how the government compensates for these revenue losses.

This paper investigates the macroeconomic projections of the German government since the 1970s and compares it to those of the Joint Economic Forecast, which is an independent forecasting institution in Germany. Our results indicate that both nominal GDP projections are upward biased for longer forecast horizons, which seems to be driven by a false assessment of the decline in Germany’s trend growth and a systematic failure to correctly anticipate recessions. Furthermore, we show that the German government deviates from the projections of the Joint Economic Forecast, which in fact worsened the forecast accuracy. Finally, we find evidence that these deviations are driven by political motives.