Worker Displacement during the Transition: Experience from Slovenia

Abstract

Unusually rich administrative data sets covering both firms and workers enabled the authors to study displacement in Slovenia during 1987-93. They describe displacement trends and the characteristics of displaced workers comparing them to those in North America during a major recession. They analyze the determinants of displacement in the framework of labor turnover, and explore factors associated with postdisplacement wage losses. Their findings were as follows. One, a comparison of displacement in Slovenia in 1990-93 and in North America during the recession of the early 1980s shows striking similarities in the incidence of displacement by gender and industry, as well as reemployment paths. Two, workers try to avoid displacement both by switching to another job and by leaving the labor force. Before becoming displaced, they also take wage cuts. Three, both the probability of displacement and the probability of job quits are negatively correlated with tenure. Fourth, women are no more likely to be displaced than men, and face smaller postdisplacement wage losses. Non-Slovenians are no more likely to be displaced than Slovenians, and face equal wage losses. Five, firm characteristics matter. The smaller and less profitable the firm, the greater the likelihood of both displacement and job-switching. Restructuring subsidies that lower firm layoff costs increase the number of firm- and worker-initiated transitions. Six, about half the displaced workers who find new jobs change occupations and about a third change industry. Seven, only about a third of workers displaced in 1990 had found a job by the end of 1991. Surprisingly, for more than 68 percent of them, wage growth exceeded the median wage growth in the economy (17 percent). Those not reemployed seem to be paying a heavy toll: not only do they stay unemployed much longer, but they face much lower reemployment wages. Eight, as studies of displacement in the United States also show, greater job experience is associated with heavier postdiplacement wage losses. The magnitude of those losses is consistent with findings about U.S. wage losses.