TY  - RPRT
        AU  - Krebs, Tom
AU  - Scheffel, Martin
        TI  - Labor Market Institutions and the Cost of Recessions
        PY  - 2016/Dec/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 10442
        UR  - https://www.iza.org/publications/dp10442
        AB  - This paper studies the effect of two labor market institutions, unemployment insurance (UI) and job search assistance (JSA), on the output cost and welfare cost of recessions. The paper develops a tractable incomplete-market model with search unemployment, skill depreciation during unemployment, and idiosyncratic as well as aggregate labor market risk. The theoretical analysis shows that an increase in JSA and a reduction in UI reduce the output cost of recessions by making the labor market more fluid along the job finding margin and thus making the economy more resilient to macroeconomic shocks. In contrast, the effect of JSA and UI on the welfare cost of recessions is in general ambiguous. The paper also provides a quantitative application to the German labor market reforms of 2003- 2005, the so-called Hartz reforms, which improved JSA (Hartz III reform) and reduced UI (Hartz IV reform). According to the baseline calibration, the two labor market reforms led to a substantial reduction in the output cost of recessions and a more moderate reduction in the welfare cost of recessions in Germany.
        KW  - labor market institutions
KW  - cost of recessions
KW  - german labor market reform
        ER  -