Worker Displacement during the Transition: Experience from Slovenia

April 1995 At 3 to 4 percent a year, the displacement rate for the Slovenian labor force in 1990- 93 was higher than that for the North American labor force during a major recession in the 1980s. But patterns of displacement were similar. Unusually rich administrative data sets covering both firms and workers enabled Orazem, Vodopivec, and Wu 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. Among their findings: ° 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 in reemployment paths. ° 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. ° Both the probability of displacement and the probability of job quits are negatively correlated with tenure. ° 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. ° 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. ° About half the displaced workers who find new jobs change occupations and about a third change industry. ° 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. ° As studies of displacement in the United States also show, greater job experience is associated with heavier postdisplacement wage losses. The magnitude of those losses is consistent with findings about U.S. wage losses. This paper -- a product of the Transition Economics Division, Policy Research Department -- is part of a larger effort in the department to investigate how labor markets work during the transition. The study was funded by the Bank's Research Support Budget under the research project Labor Market Dynamics during the Transition of a Socialist Economy (RPO 677-20).