The transition to market in Slovenia created labor displacements that were on par or greater than that experienced in North America in the 1980s. A simple theoretical model suggests that factors which raise the probability of layoff should also increase the probability of a quit, predictions that are borne out in data. Probability of both layoffs and quits fell with worker tenure, firm profitability and expected severance costs. Individuals facing a higher probability of displacement accepted slower wage growth than otherwise comparable workers. The incentives to avoid displacement were strong – workers that actually were displaced faced a slow process of transiting out of unemployment with only one-third finding reemployment. Correcting for selection, real wage losses for displaced workers are comparable to those reported for displaced workers in North America.
displacement subsidies wages reemployment Slovenia selection specific human capital