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...

Germany has always been one of the prime examples of institutional complementarities between social insurance, a rather passive welfare state, strong employment protection and collective bargaining that stabilize diversified quality production. This institutional arrangement was criticized for...