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

Lena Jacobi and Jochen Kluve*

Before and After the Hartz Reforms:

The Performance of Active Labour Market Policy in Germany

Abstract

Having faced high unemployment rates for more than a decade, the German
government implemented a comprehensive set of labour market reforms
during the period 2003-2005. This paper describes the economic and institu-
tional context of the German labour market before and after these so-called
Hartz reforms. Focussing on active policy measures, we delineate the rationale
for reform and its main principles. As results of programme evaluation studies
post-reform have become available just now, we give a first assessment of the
effectiveness of key elements of German ALMP before and after the
Hartz reforms. The evidence indicates that the re-organisation of public
employment services was mainly successful, with the exception of the
outsourcing of services. Re-designing training programmes seems to have
improved their effectiveness, while job creation schemes continue to be
detrimental for participants’ employment prospects. Wage subsidies and
start-up subsidies show significantly positive effects. On balance, therefore, the
reform seems to be moving the German labour market in the right direction.

JEL classification: J0, J68, J88

Keywords: Active labour market policy, labour market reform, programme
evaluation, Hartz laws

April 2006

* Both RWI Essen. All correspondence to Lena Jacobi, RWI Essen, Hohenzollemstr. 1-3,
45128 Essen, Germany, Fax: +49-201-8149-200, Email: jacobi@rwi-essen.de. - Part of this research
has been conducted within the project “Study on the effectiveness of ALMPs” for the European
Commission, DG Employment, Social Affairs and Equal Opportunities, Contract
No. VC/2004/0133. The opinions expressed are those of the authors only and do not represent the
Commission's official position. We are grateful to Michael Fertig and Christoph M. Schmidt for
helpful comments.

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