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Thumbscrews for Agencies or for Individuals? How to Reduce Unemployment

Authors: Andrey Launov, Klaus Wälde

Date: September 2013

Abstract

To which extent does an increase in operating e§ectiveness of public employment agencies on the one hand and a reduction of unemployment benefits on the other reduce unemployment? Using the recent labour market reform in Germany as background we find that the role of unemployment benefit reduction for the reduction of unemployment is very modest (7% of the observed decline). Enhanced e§ectiveness of public employment agencies, to the contrary, explains a substantial part (34%) of the observed post-reform unemployment decline. If disincentive e§ects of PEA reforms had been avoided, the e§ect could have increased to 51%.

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