published in: Economics of Transition, 2003, 11 (2), 253-290
Like many transition economies, Slovenia is undergoing profound changes in the workings of
the labor market with potentially greater flexibility in terms of both wage and employment
adjustment. We investigate the impact of the changing labor market for Slovenia using
unique longitudinal matched employer-employee data that permits measurement of
employment transitions and wages for workers and links of the workers to the firms with
whom they are employed. We can thus measure worker flows and job flows in a
comprehensive and integrated manner. We find a high pace of job flows in Slovenia
especially for young, small, private and foreign owned firms and for young, less educated
workers. While job flows have approached the rates observed in developed market
economies, the excess of worker flows above job flows is lower than that observed in market
economies. A key factor in the patterns of the worker and job flows is the determination of
wages in Slovenia. A base wage schedule provides strict guidelines for minimum wages for
different skill categories. However, firms are permitted to offer higher wages to an individual
based upon the success of the worker and/or the firm. Our analysis shows that firms deviate
from the base wage schedule significantly and that the idiosyncratic wage policies of firms
are closely related to the observed pattern of worker and job flows at the firm. Firms with
more flexible wages (measured as less compression of wages within the firm) have less
employment instability and also are able to improve the match quality of its workers.
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