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on European Economics |
| By: | Massimiliano Marcellino (European University Institute, Badia Fiesolana - Via dei Roccettini 9, I-50014 San Domenico di Fiesole (FI), Italy. Bocconi University and CEPR.); Alberto Musso (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper provides evidence on the reliability of euro area real-time output gap estimates. A genuine real-time data set for the euro area is used, including vintages of several sets of euro area output gap estimates available from 1999 to 2006. It turns out that real-time estimates of the output gap are characterised by a high degree of uncertainty, much higher than that resulting from model and estimation uncertainty only. In particular, the evidence indicates that both the magnitude and the sign of the real-time estimates of the euro area output gap are very uncertain. The uncertainty is mostly due to parameter instability, while data revisions seem to play a minor role. To benchmark our results, we repeat the analysis for the US over the same sample. It turns out that US real time estimates are much more correlated with final estimates than for the euro area, data revisions play a larger role, but overall the unreliability in real time of the US output gap measures detected in earlier studies is confirmed in the more recent period. Moreover, despite some difference across output gap estimates and forecast horizons, the results point clearly to a lack of any usefulness of real-time output gap estimates for inflation forecasting both in the short term (one-quarter and one-year ahead) and the medium term (two-year and three-year ahead). By contrast, some evidence is provided indicating that several output gap estimates are useful to forecast real GDP growth, particularly in the short term, and some appear also useful in the medium run. No single output gap measure appears superior to all others in all respects. JEL Classification: E31, E37, E52, E58. |
| Keywords: | Output gap, real-time data, euro area, inflation forecasts, real GDP forecasts, data revisions. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101157&r=eec |
| By: | Ludger Schuknecht (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Jürgen von Hagen (University of Bonn, Indiana University Kelley School of Business, and CEPR.); Guido Wolswijk (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This note looks at US$ and DM/Euro denominated government bond spreads relative to US and German benchmark bonds before and after the start of the current financial crisis. The study finds, first, that bond yield spreads before and during the crisis can largely be explained on the basis of economic principles. Second, markets penalise fiscal imbalances much more strongly after the Lehman default in September 2008 than before. There is also a significant increase in the spread on non-benchmark bonds due to higher general risk aversion, and German bonds obtained a safe-haven investment status similar to that of the US which they did not have before the crisis. These findings underpin the need for achieving sound fiscal positions in good times and complying with the Stability and Growth Pact. JEL Classification: E43, E62, H63, H74. |
| Keywords: | interest rates, fiscal policy, government debt, crisis, risk aversion, safe haven. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101152&r=eec |
| By: | Ferrara, L.; Koopman, S J. |
| Abstract: | The 2007 sub-prime crisis in the United States, prolonged by a severe economic recession spread over many countries around the world, has led many economic researchers to focus on the recent fluctuations in housing prices and their relationships with macroeconomics and monetary policies. The existence of common housing cycles among the countries of the euro zone could lead the European Central Bank to integrate more specifically the evolution of such asset prices in its assessment. In this paper, we implement a multivariate unobserved component model on housing market variables in order to assess the common euro area housing cycle and to evaluate its relationship with the economic cycle. Among the general class of multivariate unobserved component models, we implement the band-pass filter based on the trend plus cycle decomposition model and we allow the existence of two cycles of different periods. The dataset consists of gross domestic product and real house prices series for four main euro area countries (Germany, France, Italy and Spain). Empirical results show a strong relationship for business cycles in France, Italy and Spain. Moreover, French and Spanish house prices cycles appear to be strongly related, while the German one possesses its own dynamics. Finally, we find that GDP and house prices cycles are related in the medium-term for fluctuations between 4 and 8 years, while the housing market contributes to the long-term economic growth only in Spain and Germany. |
| Keywords: | House prices, Business cycles, Euro area, Unobserved components model. |
| JEL: | C13 C32 E32 R21 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:275&r=eec |
| By: | Alberto Musso (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Stefano Neri (Banca d’Italia, Economic Outlook and Monetary Policy Department, Via Nazionale, 91, 00184 Roma, Italy.); Livio Stracca (European Central Bank, DG International and European Relations, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | The paper provides a systematic empirical analysis of the role of the housing market in the macroeconomy in the US and in the euro area. First, it establishes some stylised facts concerning key variables in the housing market, such as the real house price, residential investment and mortgage debt on the two sides of the Atlantic. Then, it presents evidence from Structural Vector Autoregressions (SVAR) by focusing on the effects of three structural shocks, (i) monetary policy, (ii) credit supply and (iii) housing demand shocks on the housing market and the broader economy. We find that similarities overshadow differences as far as the role of the housing market is concerned. We find evidence pointing in the direction of a stronger role for housing in the transmission of monetary policy shocks in the US, while the evidence is less clearcut for housing demand shocks. We also find that credit supply shocks matter more in the euro area. JEL Classification: E22, E44, E52. |
| Keywords: | Residential investment, House prices, Credit, Monetary Policy. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101161&r=eec |
| By: | de la Feria, Rita (Centre for Business Taxation, University of Oxford); Lockwood, Ben (Department of Economics, University of Warwick and CEPR Fellow) |
| Abstract: | This paper provides a legal and economic analysis of the European Commission’s recent proposals for reforming the application of VAT to financial services, with particular focus on their “third pillar”, under which firms would be allowed to opt-into taxation on exempt insurance and financial services. From a legal perspective, we show that the proposals’ “first and second pillar” would give rise to considerable interpretative and qualification problems, resulting in as much complexity and legal uncertainty as the current regime. Equally, an option to tax could potentially follow significantly different legal designs, which would give rise to discrepancies in the application of the option amongst Member States. On the economic side, we show that quite generally, when firms cannot coordinate their behaviour, they have an individual incentive to opt-in on business-to-business (B2B) transactions, but not on business-to-consumer (B2C) transactions. We also show that opting in eliminates the cost disadvantage that EU financial services firms face in competing with foreign firms for B2B sales. But, these results do not hold if firms can coordinate their behaviour. An estimate of the upper bound on the amount of tax revenue that might be lost from allowing opting-in is provided for a number of EU countries. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:927&r=eec |
| By: | Wyplosz, Charles (Asian Development Bank Institute) |
| Abstract: | This paper contrasts the United States (US) and European situations during the crisis and examines how much of the crisis has been imported by Europe from the US. The paper argues that Europe never had a chance to avoid contagion from the US. It also documents the relatively limited reaction of both monetary and fiscal authorities. Muted fiscal policy actions may well be a consequence of the Stability and Growth Pact despite its having been de facto suspended. While the European Central Bank (ECB) intervened promptly and massively to attempt to maintain liquidity in the money market, it has been slow in dealing with the upcoming recession. The concluding remarks consider the differences that the monetary union has made and their relevance. |
| Keywords: | us european economic crisis; global financial crisis; europe imported financial crisis |
| JEL: | E42 E58 E61 F32 F33 |
| Date: | 2010–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0207&r=eec |
| By: | Gabe de Bondt (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Angela Maddaloni (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); José-Luis Peydró (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Silvia Scopel (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This study examines empirically the information content of the euro area Bank Lending Survey for aggregate credit and output growth. The responses of the lending survey, especially those related to loans to enterprises, are a significant leading indicator for euro area bank credit and real GDP growth. Notwithstanding the short history of the survey, the findings are robust across various specifications, including “horse races” with other well-known leading financial indicators. Our results are supportive of the existence of a bank lending, balance sheet, and risk-taking channel of monetary policy. They also suggest that price as well as non-price conditions and terms of credit standards do matter for credit and business cycles. Finally, we discuss the implications for the 2007/2009 financial and economic crisis. JEL Classification: C23, E32, E51, E52, G21, G28. |
| Keywords: | bank lending survey, credit cycle, business cycle, monetary policy transmission, euro area. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101160&r=eec |
| By: | Barbara Dietz (Osteuropa-Institut, Regensburg (Institut for East European Studies)) |
| Abstract: | In recent years labour migration from Central and Eastern Europe has increased, resulting in a comparatively stable and high inflow of remittances into these countries. This briefing explores how the current economic crisis impacts on the development of migration and remittance flows into EU-10 and CIS countries. There is evidence for a reduction of migration movements in the short run and a likely decrease of remittance flows into this region. |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:ost:memopp:42&r=eec |
| By: | Sebastian Giesen; Oliver Holtemöller; Juliane Scharff; Rolf Scheufele |
| Abstract: | In this paper we develop a small open economy model explaining the joint determination of output, inflation, interest rates, unemployment and the exchange rate in a multi-country framework. Our model – the Halle Economic Projection Model (HEPM) – is closely related to studies recently published by the International Monetary Fund (global projection model). Our main contribution is that we model the Euro area countries separately. In this version we consider Germany and France, which represent together about 50 percent of Euro area GDP. The model allows for country specific heterogeneity in the sense that we capture different adjustment patterns to economic shocks. The model is estimated using Bayesian techniques. Out-of-sample and pseudo out-of-sample forecasts are presented. |
| Keywords: | Multi-country model, Forecasting, Bayesian estimation |
| JEL: | C32 C53 E37 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:iwh:dispap:6-10&r=eec |
| By: | Juan Angel García (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Thomas Werner (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper investigates the link between the perceived inflation risks in macroeconomic forecasts and the inflation risk premia embodied in financial instruments. We first provide some stylized facts about the term structure of inflation compensation, inflation expectations and inflation risk premia in the euro area bond market. Latent factor models like ours fit data well, but are often critisized for lacking economic interpretation. Using survey inflation risks, we show that perceived asymmetries in inflation risks help interpret the dynamics of long-term inflation risk premia, even after controlling for a large number of macro and financial factors. JEL Classification: G12, E31, E43. |
| Keywords: | Affine term structure models, state-space modelling, inflation compensation, inflation risk premia, inflation risks. |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101162&r=eec |
| By: | Yener Altunbas (Centre for Banking and Financial Studies, Bangor University, Bangor, Gwynedd LL57 2DG, United Kingdom.); Leonardo Gambacorta (Bank for International Settlements, Monetary and Economics Department, Centralbahnplatz 2, CH-4002 Basel, Switzerland.); David Marqués-Ibáñez (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper investigates the relationship between short-term interest rates and bank risk. Using a unique database that includes quarterly balance sheet information for listed banks operating in the European Union and the United States in the last decade, we find evidence that unusually low interest rates over an extended period of time contributed to an increase in banks' risk. This result holds for a wide range of measures of risk, as well as macroeconomic and institutional controls. JEL Classification: E44, E55, G21. |
| Keywords: | bank risk, monetary policy, credit crisis. |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101166&r=eec |
| By: | Cette, G.; Kocoglu, Y.; Mairesse, J. |
| Abstract: | This study compares labor and total factor productivity (TFP) in France, Japan, the United Kingdom and the United States in the very long (since 1890) and medium (since 1980) runs. During the past century, the United States has overtaken the United Kingdom and become the leading world economy. During the past 25 years, the four countries have also experienced contrasting advances in productivity, in particular as a result of unequal investment in information and communication technology (ICT). The past 120 years have been characterized by: (i) rapid economic growth and large productivity gains in all four countries; (ii) a long decline in productivity in the United Kingdom relative to the United States, and to a lesser extent also relative to France and Japan, a relative decline that was interrupted by the second world war (WW2); (iii) the remarkable catching-up to the United States by France and Japan after WW2, interrupted in the case of Japan during the 1990s. Capital deepening (at least to the extent this can be measured) accounts for a large share of the variations in performance; increasingly during the past 25 years, this has meant ICT capital deepening. However, the capital contribution to growth varies considerably over time and across the four countries, and it is always less important, except in Japan, than the contribution of the various other factors underlying TFP growth, such as, among others, labor skills, technical and organizational changes and knowledge spillovers. Most recently (in 2006), before the current financial world crisis, hourly labor productivity levels were slightly higher in France than in the United States, and noticeably lower in the United Kingdom (by roughly 10%) and even lower in Japan (30%), while TFP levels are very close in France, the United Kingdom and the United States, but much lower (40%) in Japan. |
| Keywords: | Productivity, growth accounting, macro-economic history. |
| JEL: | O47 O57 E22 J24 N10 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:271&r=eec |
| By: | Jozef Barunik (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic, Prague); Lukas Vacha (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic, Prague); Miloslav Vosvrda (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic, Prague) |
| Abstract: | In the paper we research statistical properties of the Central European stock markets. We focus mainly on the tail behavior of the Czech, Polish, and Hungarian stock markets and compare them to the benchmark U.S. and German stock markets. We fit the data of the 4-year period from March 2005 to March 2009 with the stable probability distribution model and discuss its tail behavior. As the estimation of the tail exponent is very sensitive to the size of the data set, the estimates can be misleading for short daily samples. Thus, we employ high-frequency 1-minute data, which proves to be a good choice as it reveals interesting findings about the distributional properties. Furthermore, we study the difference in stock market behavior before and during the financial crisis. |
| Keywords: | financial crisis, tail behavior, stock markets, stable probability distribution |
| JEL: | G14 C13 C16 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2010_04&r=eec |
| By: | Faia, Ester (Goethe University Frankfurt); Lechthaler, Wolfgang (Kiel Institute for the World Economy); Merkl, Christian (Kiel Institute for the World Economy) |
| Abstract: | Several contributions have recently assessed the size of fiscal multipliers both in RBC models and New Keynesian models. None of the studies considers a model with frictional labour markets which is a crucial element, particularly at times in which much of the fiscal stimulus has been directed toward labour market measures. We use an open economy model (more specifically, a currency area calibrated to the European Monetary Union) with labour market frictions in the form of labour turnover costs and workers’ heterogeneity to measure fiscal multipliers. We compute short and long run multipliers and open economy spillovers for five types of fiscal packages: pure demand stimuli and consumption tax cuts return very small multipliers; income tax cuts and hiring subsidies deliver larger multipliers, as they reduce distortions in sclerotic labour markets; short-time work (German "Kurzarbeit") returns negative short-run multipliers, but stabilises employment. Our model highlights a novel dimension through which multipliers operate, namely the labour demand stimulus which occurs in a model with non-walrasian labour markets. |
| Keywords: | fiscal multipliers, fiscal packages, labour market frictions |
| JEL: | E62 H30 J20 H20 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4849&r=eec |
| By: | Dimitris Georgarakos (Goethe University Frankfurt, House of Finance, Grüneburgplatz 1, PF H32, 60323 Frankfurt am Main, Germany.); Adriana Lojschova (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany and IMF.); Melanie Ward-Warmedinger (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany and IZA.) |
| Abstract: | Using comparable survey data from twelve European countries from 1994 to 2001 we investigate households’ attitudes towards mortgage indebtedness. We find that a given debt burden creates much higher distress in countries with fewer mortgage holders relative to countries where a significant part of households uses mortgage debt. This effect is net of ppp-adjusted income levels, various socioeconomic characteristics, housing traits, country-specific constant terms, and household unobserved heterogeneity. We show that households evaluate their own debt burden partly in comparison with the debt position of their peer group and in a way consistent with social stigma considerations which lessen in significance as markets expand. JEL Classification: D12, D14, G21. |
| Keywords: | Mortgage debt, credit markets, financial distress, household finance, peer effects. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101156&r=eec |
| By: | Chauvin, V.; Damette, O. |
| Abstract: | This paper studies the relationship between consumption and wealth based on the concept of cointegration. The analysis focuses on French data over the 1987 - 2006 period. This relationship is expressed in two ways: in terms of Marginal Propensity to Consume out of wealth (MPC) and in terms of Elasticity of consumption to wealth. Three concepts of consumption are investigated: total households consumption expenditure, consumption excluding financial services and consumption excluding durable goods. Different estimators are also considered. Based on the MPC approach, when considered as permanent by households, an increase (decrease) in total wealth of one euro would lead to an increase (decrease) of 1 cent in total consumption. In terms of elasticity, an increase (de- crease) of 10% in wealth would imply also a relatively small impact of 0.8 to 1.1% on consumption depending on the concept of consumption considered. In most cases, the effect of a change in financial wealth is bigger than of a change in housing wealth. The results indicate that the wealth effects are smaller in France than in the UK and US but close to what is observed in Italy. In addition, any deviation of the variables from their common trends is corrected at first by adjustments in disposable income in line with what has been uncovered by studies on Germany and consistent with the "saving for the rainy days" approach of Campbell (1987). But our results contrast with the seminal study of Lettau and Ludvigson (2004) in the US where asset prices make the bulk of the adjustment. |
| Keywords: | consumption, wealth effect, France. |
| JEL: | E21 E32 C22 G12 G20 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:276&r=eec |
| By: | António Afonso (European Central Bank, Directorate General Economics, Kaiserstraße 29, D-60311 Frankfurt am Main, Germany; ISEG/TULisbon – Technical University of Lisbon, Department of Economics; UECE – Research Unit on Complexity and Economics, R. Miguel Lupi 20, 1249-078 Lisbon, Portugal.); Miguel St. Aubyn (ISEG/TULisbon – Technical University of Lisbon, Department of Economics; UECE – Research Unit on Complexity and Economics, R. Miguel Lupi 20, 1249-078 Lisbon, Portugal.) |
| Abstract: | In a cross section of OECD countries we replace the macroeconomic production function by a production possibility frontier, TFP being the composite effect of efficiency scores and possibility frontier changes. We consider, for the periods 1970, 1980, 1990, 2000, one output: GDP per worker; three inputs: human capital, public physical capital per worker and private physical capital per worker. We use a semiparametric analysis, computing Malmquist productivity indexes, and we also resort to stochastic frontier analysis. Results show that private capital is important for growth, although public and human capital also contribute positively. A governance indicator, a non-discretionary input, explains inefficiency. Better governance helps countries to achieve a better performance. Non-parametric and parametric results coincide rather closely on the countries movements vis-à-vis the possibility frontier, and on their relative distances to the frontier. JEL Classification: C14, D24, H50, O47. |
| Keywords: | economic growth, public spending, efficiency, Malmquist index. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101154&r=eec |
| By: | Fabrizio Coricelli (Centre d'Economie de la Sorbonne and CEPR); Mathilde Maurel (Centre d'Economie de la Sorbonne) |
| Abstract: | The paper provides an empirical analysis of the growth performance of transition countries in a comparative perspective, separating episodes of crises from those of growth. Performance is measured by the output response following recessions, rather than average rates of growth that aggregate periods of recessions and periods of growth. Results highlight significant differences between transition and non-transition countries, and heterogeneity within the transition group. Distinguishing the performance following the so-called "transitional recession" from that of "normal recessions", the analysis allows separating the role of initial conditions, pre-transition, from the effects determined by the economic structure that emerged after the launch of market reforms. The post-recession behavior of output in Central-Eastern Europe resembles that of emerging and developing countries in the aftermath of banking and financial crises, often following significant liberalizations. In contrast, the post-crisis performance of CIS countries resembles the output response observed during episodes of civil wars, and remains significantly different from the normal response of an average market country. Therefore, the ability to rebound after a crisis is a key element of the growth performance of different transition countries. Furthermore, we distinguish three components of the growth performance associated to a crisis, namely the capacity to rebound, the depth and the lenght of the crisis. We observe that such performance depends on economic reforms and especially on the complementarities among different reforms. |
| Keywords: | Recessions, crises, reform complementarities, transition. |
| JEL: | C23 F43 O40 P27 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:10020&r=eec |
| By: | de Bandt, O.; Barhoumi, K.; Bruneau, C. |
| Abstract: | In order to assess transmission mechanisms between global and domestic house prices, and possibly contagion effects, we use a large database of macroeconomic variables for OECD countries. We extract common factors to summarize the comovements of the variables and include them in stationary FAVAR models. We mainly focus on the "pandemic" view of contagion where local shocks, originating from a country or a local housing market, spread out to other domestic housing markets. An interesting finding is that, even allowing for other channels of international transmission (through global interest rates, or activity), the US real house price, which appears to be exogenous in the US dynamics, unidirectionally causes the international house price factor, which in turn causes the domestic real house price growth for several countries. The channels of contagion from the US appears therefore to be either direct, through house prices (in particular in the UK or Spain), or indirect through other variables. |
| Keywords: | housing, factor models, Vector Autoregressive model. |
| JEL: | G33 E32 D21 C41 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:274&r=eec |
| By: | Schneider, Hilmar (IZA); Zimmermann, Klaus F. (IZA, DIW Berlin and Bonn University) |
| Abstract: | This strategy paper by the Institute for the Study of Labor (IZA) shows ways in which Germany once more can attain full employment in the coming decade. Much of what the previous government's "Agenda 2010" has put into motion has clearly steered labor market development in the right direction. The reforms are one of the main reasons why Germany has been more resistant to the recent financial and economic crisis than other countries. While these achievements should not be called into question, further action is necessary. The IZA concept includes the following elements: (1) Education reform: Early childhood education must be improved. Social background should no longer determine future career prospects. More independence and competition between schools and universities would improve the quality of education. Selection of students into different secondary school tracks should occur at a higher age. The dual system of apprenticeship training could be shortened. College tuition fees could be replaced by a graduate tax. (2) Welfare state reform: A consistent implementation of the principle of reciprocity would create additional employment incentives and make working for a living worthwhile again even for the low-skilled. Workfare is socially just and promotes independence rather than producing dependency. Child benefits should be granted primarily as vouchers. (3) Job placement reform: The problem groups of the labor market need one-stop support tailored to their individual needs as soon as they become unemployed. IZA proposes the creation of job centers that act independently from local and federal authorities in order to avoid the organizational maze of unclear responsibilities. (4) Immigration policy reform: Germany needs high-skilled immigrants to cope with demographic change and skilled labor shortages. A selection system for permanent immigrants and a market-based solution for temporary immigrants would substantially increase the economic benefits of immigration and create additional momentum for the realization of full employment. |
| Keywords: | labor market policy, Agenda 2010, Hartz reforms, workfare, job center, education, demography, migration policy |
| JEL: | J08 J18 J21 J24 J38 J61 J68 I28 I38 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izapps:pp15&r=eec |