Conflict displacement and labor market outcomes in post-war Bosnia & Herzegovina

Year: 2008 HiCN Working Paper No. 045

The 1992/95 war in Bosnia and Herzegovina (BiH) drove about 1.3 Million people into displacement (UNHCR). This study uses a longitudinal data source to document the nature of individual selection into conflict-induced displacement and the effects of displacement on labor market outcomes for Bosnians in post-war BiH. To account for endogeneity in the displacement status, I exploit the fact that the level of violence in the pre-war residence likely affected the displacement decision for Bosnians and yet is not associated to economic performance. I find evidence of positive selection into displacement, i.e. more “able” individuals in terms of labor market outcomes are more likely to be displaced, and that displaced Bosnian men and women are less likely to be in work relative to stayers. Interestingly, whereas worklessness translates into higher unemployment for men, it decreases the women’s participation with no effect on unemployment once selection is accounted for. The informality of the labor market in BiH and the destruction of networks are not only the most plausible candidates to explain the negative effect of displacement on labor market performance, but also help rationalise the lack of an effect on participation for displaced men.