Working Paper

The German Labor Market During the Great Recession: Shocks and Institutions


  • Gehrke
  • B.
  • Lechthaler
  • W.
  • Merkl
  • C.
Publication Date

This paper analyzes Germany’s unusual labor market experience during the Great Recession. We estimate a general equilibrium model with a detailed labor market block for post-unification Germany. This allows us to disentangle the role of institutions (short-time work, government spending rules) and shocks (aggregate, labor market, and policy shocks) and to perform counterfactual exercises. We identify positive labor market performance shocks (likely caused by labor market reforms) as the key driver for the“German labor market miracle” during the Great Recession.


JEL Classification
E24, E32, E62, J08, J63

Key Words

  • business
  • cycles
  • DSGE
  • fiscal policy
  • Germany
  • Great Recession
  • search andmatching
  • short-time work