The effects of reforming a federal employment agency on labor demand
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Date
2019
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Abstract
In this paper we report the results of an empirical study on the employment growth
effects of a policy intervention, explicitly aimed at increasing placement efficiency
of the Federal Employment Agency in Germany. We use the Hartz III reform in
the year 2004 as an exogenous intervention that improves the matching process and
compare establishments that use the services of the Federal Employment Agency
with establishments that do not use the placement services. Using detailed German
establishment level data, our difference-in-differences estimates reveal an increase
in employment growth among those firms that use the agency for their recruitment
activities compared to non-user firms. After the Hartz III reform was in place, establishments
using the agency grew roughly two percentage points faster in terms
of employment relative to non-users and those establishments achieve an increase
in the proportion of hires. We provide several robustness tests using for example
inverse-probability weighting to additionally account for differences in observable
characteristics. Our paper highlights the importance of the placement service on
the labor demand side, in particular on the so far overlooked establishment level.
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Keywords
Hartz III reform, difference-in-differences, employment growth, matching efficiency, Federal Employment Agency