GERMANY'S UNEMPLOYMENT SOLUTION, BY THE APLIA ECONOMICS CONTENT TEAM Although the unemployment rate is not a perfect measure (falling to account for potential increases in discouraged or underemployed workers), it remains a key indicator of a nation's economic health. While Germany now enjoys a healthy unemployment rate of only 3.6% as of December 2017, the labor market has not always been booming in this European country. For example, as recently as 2005, German unemployment accounted for nearly 10% of the labor force. There are many factors that contributed to the turnaround of Germany's labor market over the last decade, including wage decentralization and increased competitiveness according to an article from the Harvard Business Review (Alexandra Spitz-Oener, "The Real Reason the German Labor Market Is Booming," March 13, 2017). However, one of the most well-known policy changes of the early 21st century was the Hartz reforms, which included a sharp decrease in unemployment benefits that altered the incentives of unemployed workers. Before the enactment of the reforms, eligible Germans received 60% to 67% of their previous net salaries for 12 to 36 months, after which period they continued to receive 53% to 57%. After the reforms were enacted in 2005, the full unemployment benefits ( 60% to 67%) were only available for a year (or 18 months for those over 55); after that, the benefits decreased sharply, and claimants were forced to agree to a contract requiring them to take steps toward finding a job. This tightening of unemployment benefits encouraged the unemployed to find jobs by making long-term unemployment an unattractive option. While the cost to those who remained unemployed must be weighed against the overall benefit to the economy, this example illustrates how people respond to changes in incentives. According to the article, prior to 2005, an unemployed person in Germany who had been earning a net salary of 65,000 per year would receive up to per year in unemployment benefits after the period of receiving full benefits ended