The German unemployment since the Hartz reforms: Permanent or transitory fall?

•The Hartz reforms attempted to make the German labor market more flexible.•Unobserved components models distinguish permanent from transitory fluctuations.•Our unobserved components models consist of unemployment rate and real GDP.•The unemployment trend was reduced in the range of 1.1 and 2.6 percentage points.

The Hartz reforms were designed to make the German labor market more flexible in order to reverse the increasing trend of unemployment. This paper employs unobserved components models in order to distinguish permanent from transitory movements in the German unemployment rate. Our results show that the permanent component of the German unemployment was reduced in the range of 1.1 and 2.6 percentage points after the Hartz reforms.