Brigitte Hochmuth

This paper links labor market reforms to external balances through precautionary saving under imperfect insurance against unemployment risk. We quantify the mechanism for a major German benefit reform by combining fixed-effects evidence from the German Socioeconomic Panel with a small open economy heterogeneous agent model featuring search frictions. The reform-induced rise in private saving permanently increases net foreign assets. The model accounts for up to 12 percent of post-reform current account dynamics and delivers empirically consistent real exchange rate movements, whereas these dynamics are largely absent under complete insurance. Welfare effects are highly heterogeneous across employment status, skill, and wealth.

This paper shows that less generous unemployment benefits in one country may generate substantial negative long-run consumption spillovers to non-reforming countries under incomplete consumption insurance. While lower benefits reduce unemployment in the reforming country, employed workers increase their precautionary savings to compensate for reduced government-provided insurance. A portion of these additional savings flows to the non-reforming country and depresses long-term consumption due to the negative net foreign asset position. To discipline our quantitative model, we estimate the increase of Germany’s tradable sector in the aftermath of the Hartz unemployment insurance reform based on firm-level data. Our quantitative model matches a significant fraction of various macroeconomic trends after the reform, namely Germany’s persistent increase of aggregate savings and net foreign assets, the increase of net exports, the real exchange rate depreciation within the Eurozone, and the decline in unemployment. Conversely, Germany’s wage moderation before the reform appears to be unrelated to most of these phenomena.

This paper studies how individual risk attitudes shape occupational choice and wealth accumulation. Using self-reported individual risk preferences from the German Socioeconomic Panel (GSOEP), we estimate that an increase in risk tolerance raises the probability of a worker transitioning to self-employment. We also develop a life-cycle model of occupational choice with Epstein-Zin preferences and heterogeneous risk attitudes to study how risk aversion interacts with entrepreneurial ability and wealth in determining entry into self-employment and its aggregate implications. Counterfactual simulations show that increasing business risk reduces entry but improves selection by entrepreneurial skills. In contrast, Germany’s “1-Euro GmbH” reform of 2008 weakened the role of risk tolerance for entry and increased participation by more risk-averse individuals.

I document the heterogeneous effects of credit supply shocks on the labor market over time and by firm age. During the Great Financial Crisis (GFC), a credit crunch caused young firms to reduce employment significantly more than old firms. The housing bust starting in 2006 eroded young firms' collateral, restricting their borrowing capacity. To disentangle the relative contributions of the credit supply and net worth channels, I develop a financial friction model with an explicit firm age structure. The model explains the empirical findings by showing how a simultaneous credit crunch and decline in young firms' net worth disproportionately affect their borrowing capacity and labor demand. While old firms shift toward equity financing in response to the shock, young firms rely heavily on debt financing and are forced to reduce labor demand. Given that young firms disproportionately drive aggregate job growth, these findings explain the sluggish labor market recovery after the GFC and highlight the critical role of firm age in amplifying macroeconomic shocks.