We evaluate worker and firm behavior in response to the German Hartz reforms using detailed micro data. The comprehensive Hartz labor market changes were implemented between 2003 and 2005 to reduce unemployment, by increasing working hour flexibility, job matching and work incentives. Our evaluation of these comprehensive reforms accounts for heterogeneous effects on workers and firms. We exploit the dynamics of the model for identification and es- timate by maximum likelihood using matched data on around 430,000 workers employed in 340,000 firms from 2001-2005. Contrary to previous findings, our evaluation shows that the reforms marginally reduced unemployment at the cost of a pronounced reduction in wages. Fur- thermore, we decompose the contribution of each reform wave on employment and wages, and document a structural shift in the factors that govern overall wage dispersion after the reforms. Match specific and frictional wage variation become relatively more prominent after the reforms, while the importance of firm and sorting effects is reduced.