Unemployment compensation and unemployment duration before and after the German Hartz IV reform

In 2005, the unemployment benefits for long-term unemployed were reduced inGermany. We investigate the effect of this reform on the transition probability fromunemployment to employment using a large German administrative spell data set (SIAB1975–2010). We estimate that the daily transition probability of medium wage earnersincreased on average by 24% after the reform. The effect is lower for both, low and highwage earners. Men were less affected than women and West Germans were less affectedthan East Germans. For short-term unemployed the effect is increasing over unemploymentduration while long-term unemployed apparently did not benefit from the reform.