26
Lena Jacobi and Jochen Kluve
measure, wage subsidies, the reform provided the first opportunity to consis-
tently evaluate its effects and thus to reveal its apparently high effectiveness.
Several new measures - placement voucher, assignment to private placement
providers, fixed-term contracts for the elderly - do not display significant
effects, which may be due to de facto ineffective or small-scale policies, or
perhaps due to the fact that the post-reform observation period is not yet long
enough. While placement via temporary work (PSA) shows negative
treatment effects, the new start-up subsidy significantly reduces the risk of un-
employment. Both the deregulation of the temporary work sector and the in-
troduction and reform, respectively, of jobs with reduced social security con-
tributions (Midijobs and Minijobs) appear to have created additional em-
ployment opportunities in the respective labour market segments. However,
intra-enterprise displacement effects cannot be ruled out. The general re-
design of the public employment services appears promising.
On balance, we therefore find that the Hartz reforms in their entirety seem to
have contributed to a better functioning of the German labour market and the
effectiveness of specific active labour market policies. This positive as-
sessment, however, has to be qualified somewhat in light of the fact that the
starting point upon which the reforms intended to improve had been quite
dismal.
5. Conclusion
In this paper we have pictured the features of German labour market policy
and delineated the rationale for the Hartz reforms implemented in the years
2003-2005. We have described the main underlying principles and the corre-
sponding policy changes. Thereafter we have surveyed the existing evidence
on the effects of active labour market policy before and after the reforms.
German ALMP before Hartz was dominated by training and public job
creation measures. These measures were characterised by a long duration
compared to other countries. Especially in East Germany the extensive use of
job creation measures created a sheltered labour market of substantial mag-
nitude. In contrast, measures directly supporting integration into regular em-
ployment (e.g. wage subsidies and start-up subsidies) were introduced rela-
tively recently and played a minor role before. Assignment to programmes
was not based on a systematic profiling of costumers. Generally, job search as-
sistance and monitoring by the public employment agency was given rather
low priority. It was argued that the main weaknesses of the former labour
market policy in Germany were, firstly, public employment services operating
inefficiently, and secondly, the fact that the interplay of active policy measures
with the generous benefit system created adverse work incentives that re-