Where did all the unemployed go? Non-standard work in Germany after the Hartz reforms

The number of unemployed workers in Germany decreased dramatically from its peak in February 2005 at over 5.2 million to 3.6 million by 2008. At the same time, employment increased by 1.2 million. Most theoretical and empirical analyses of this episode assume that a worker leaving unemployment moves into full employment. We ask where the unemployed actually went. Using and merging two large micro data sets, we account for the decrease of unemployment by computing inflows and outflows between unemployment and 16 other labour market states. Direct flows between unemployment and full employment contributed for only less than 9 percent to the decline in unemployment. By contrast, more than 37 percent of the unemployed workers ended up in non-standard work. About 13 percent participated in labour market policy programmes and 28 percent retired. Following the unemployment cohort of February 2005 over time confirms the order of magnitude of our findings.