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Public Employment Agency Reform, Matching Efficiency, and German Unemployment

Referierte Aufsätze Web of Science

Christian Merkl, Timo Sauerbier

In: IMF Economic Review (online first) (2023),


Our paper analyzes the role of public employment agencies in job matching, in particular the effects of the restructuring of the Federal Employment Agency in Germany (Hartz III labor market reform) for aggregate matching and unemployment. Based on two microeconomic datasets, we show that the market share of the Federal Employment Agency as job intermediary declined after the Hartz reforms. We propose a macroeconomic model of the labor market with a private and a public search channel and fit the model to various dimensions of the data. We show that direct intermediation activities of the Federal Employment Agency did not contribute to the decline in unemployment in Germany. By contrast, improved activation of unemployed workers reduced unemployed by 0.8 percentage points. Through the lens of an aggregate matching function, more activation is associated with a larger matching efficiency.

Keywords: Hartz reforms; search and matching; reform of employment agency