Regional employment effects of the Hartz-reforms

Between 2003 and 2005, the German government passed an unprecedented package of labor market reforms, commonly known as the Hartz-reforms. This led to a "labor market miracle" with sharply declining unemployment rates. This paper examines these reforms at the regional level and provides a comprehensive picture of whether the reforms have exacerbated or reduced regional disparities. I apply a regional difference-in-differences framework commonly used in the minimum wage evaluation literature to analyze the effect of the reforms on employment at the county level. The empirical results show that while all counties benefited from the Hartz-reforms, more prosperous counties derived a stronger benefit than those with high unemployment rates. The evidence is stronger for West Germany than for East Germany. Overall, the reforms have not improved economic performance homogeneously, but have actually increased regional disparities.