Using detailed German establishment level data, we model the relationship between job matching efficiency and employment growth. We use a policy reform (Hartz III) which was explicitly framed at improving the placement process of the Public Employment Agency (PEA) in Germany. Baseline difference-in-differences estimates reveal that reforming the Public Employment Agency results in an increased creation of employment among the users of the placement services relative to non-users. After the Hartz III reform was in place, establishments using the PEA grew roughly 2 percentage points faster in terms of employment relative to non-users. We also provide robustness checks using inverse-probability weighting for our identification strategy which highlights the internal validity of our results. Due to the scarcity of studies investigating the Hartz reforms on the establishment level, our results are highly relevant for policy makers trying to improve job matching efficiency. In this view, we gain new insights in the mode of action in one of the most profound labor market programs in the last decades.
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