ABSTRACT
The key elements of Agenda 2010 aimed at reforming the labour market institutions. The so-called Hartz reforms, which represented the core of the Agenda, were implemented in different steps between 2003 and 2005. In addition to improving the effectiveness and efficiency of the Federal Employment Services, the fundamental concept to improve the functioning of the labour market and reduce unemployment can be characterized as “supporting and demanding”. The German labour market reforms of 2003 to 2005 were a drastic and painful but ultimately effective cure. Although not all parts of the reforms were well designed, strong positive labour market effects were rapidly visible. The response of the labour market to the Great Recession can be seen as a first litmus test of whether the resilience mechanisms of the German model would survive the reforms. Traditionally, the German economy ran successfully with a rather low level of earnings inequality.
