Before and After the Hartz Reforms: The Performance of Active Labour Market Policy in Germany

Performance of Active Labour Market Policy in Germany

duction of jobs with reduced social security contributions for the income range
between 400 and 800 € (Midijobs), and the reform of marginal employment
waiving social security contributions for incomes below 400 € (Minijobs) is ex-
pected to increase the number of persons working in these earnings segments.
The introduction of Mini- and Midijobs constitutes a “universal treatment”,
i.e. everybody in the labour market is affected, and no comparison group
without treatment exists. Its effects are examined by first estimating the indi-
vidual probability of each worker to be employed in the respective earning
segment before the reform, using a fixed-effects linear probability model.
Then, assuming that structural parameters would have remained identical
without the reform, the counterfactual probability of employment in these
segments is estimated on the basis of post-reform data utilizing the estimated
pre-reform parameters. The reform effect is then given by the difference
between the estimated post-reform probabilities using pre-reform coefficients
and the actual post-reform probabilities.

The results show that the introduction of reduced social security subsidies for
Midijobs caused a significant increase of about 125,000 in the number of em-
ployees in this income range, while the Minijob reform caused a huge ex-
pansion of employment in this earnings segment (+1.8 million Minijobs due to
the reform). However, incidence of intra-enterprise displacement of regular
jobs cannot be ruled out. Moreover, employees who benefit from the regu-
lations have rarely been previously unemployed, in spite of hopes associated
with this policy that especially unemployed individuals would increasingly
take on Mini- and Midijobs. This might be due to the fact that the marginal tax
on people who move from unemployment to employment is still very high.

4. (c) Labour Market Deregulation

As is the case for the evaluation of the Minijobs and Midijobs reforms, deregu-
lation policies regarding temporary work and fixed-term contracts are
evaluated with respect to the general employment structure. The exemption of
small firms from dismissal protection regulation, however, was not subject to
an evaluation.

Deregulation of Temporary Work

The reform of temporary work regulations is evaluated in the report by RWI
Essen et al. (2005) applying the same methodology for universal treatments as
for the Mini-/Midijob evaluation outlined above. The results indicate that the
reform significantly increased the number of employees in the temporary
work sector in the two quarters after the reform. No data is available yet for
longer periods.

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