Which factors are behind Germany's labour market upswing?

The strong and sustained labour market upswing in Germany is widely recognized. In a developing literature, various relevant studies highlight different specific reasons. The underlying study, instead, simultaneously considers a broad set of factors in a unified methodological framework and systematically weighs the candidate reasons for the labour market upswing against each other on an empirical basis. The candidates are: shocks on (de)regulation of employment or job creation intensity, the efficiency of the matching process, wage determination, the separation propensity, the size of the labour force, technology, business cycle and working time. We develop a structural macroeconometric framework that leaves as manyof the systematic interlinkages as possible for empirical determination while operating with a minimal set of restrictions in order to identify economically meaningful shocks. For this purpose, we combine short- and long-run restrictions based on search-and-matching theory and established assumptions on labour force development and technological change. Matching efficiency, job creation intensity, labour force, and separation propensity yield the largest contributions in explaining the German labour market upswing.