IMPACT OF PRIVATIZATION

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• IMPACT OF PRIVATIZATION
• OVER LABOR FORCE
• In a Sample of Privatized Firms in Chile

CORFO, the Chilean Economic Development
Agency SOEs Administration Privatisation
Committee, SEP Carlos Mladinic, Chairman, SEP,
cmladinic_at_corfo.cl
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THE IMPACT OF PRIVATIZATION UPON LABOR FORCE

• There are multiple impacts from privatization
  upon workers and the labor force, which not
  necessarily involve a cutdown of workers in
  privatized firms.
• In Chile, privatization has resulted in greater
  investment, which has had a positive impact over
  the countrys labor force.
• In state-owned firms transferred to the private
  sector, workers are protected by agreements that
  increase stability, severance protection and
  direct additional benefits.

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BENEFITS FOR WORKERSPrivatizations during the
90s
W O R K E R S
1.- Advanced legal severance payment, plus
additional compensation.
2.- Option to purchase shares for up to 10 of
the firm at preferential prices.
3.- CORFOs credit to purchase shares, payable in
18 years, with preferential interest rate.
4.- Personal credit of up to 87 the price of
the shares as liquidity support for consumption
(preferential rate)
5.- Special severance packages for workers
dismissed during the first 24 months after
privatization
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BENEFITS FOR WORKERSPrivatizations during the
80s
W O R K E R S
1.- Advanced payment of up to 90 of legal
benefits the worker is obliged to earmark 80
to purchase shares.
2.- 30 of the shares available for workers at
preferential prices.
3.- The amount due of severance payment is paid
when the worker retires.
4.- Preferential rate credit for personal
consumption.
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COMPAÑÍA de ACERO del PACIFICO C.A.P (Iron Mines
Steel Mill)Trend for investments and Labor
Force
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Compañía de Telefonos de Chile CTC (Basic Telecom
Company) Trend of investments and labor force
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Compañía Chilena de Electricidad, CHILECTRA
(Power Utility)Trend Of Investments And Labor
Force
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Empresa de Telecomunicaciones de Chile ENTEL
(Long Distance Telecom Company) Trend of
Investments and Labor Force
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LAN Chile (Flag Airline) Trend of Investments
and Labor Force
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IMPACT OF PRIVATIZATION UPON LABOR FORCE IN WATER
UTILITIES

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A comparison privatizations during the 80s and
90s Sales values got by SEP
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OUTSOURCED LABOR FORCEFIRMS PRIVATIZED IN THE
80s
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IMPACT UPON LABOR FORCEFIRMS PRIVATIZED IN THE
80s
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FIRMS PRIVATIZED IN THE 90sWATER UTILITIES
Trend of Investments in US million and workers
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WATER UTILITIESTREND OF INVESTMENTS AND LABOR
FORCE
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THE IMPACT OF PRIVATIZATION UPON WORKERS AND
LABOR FORCEConclusions

• Corporate investments have increased as a result
  of privatizations in Chile, with a positive
  impact upon the labor force.
• In the sample of firms privatized during the
  80s, workers (both direct and indirect)
  increased their share of National Work Force from
  0.58 in 1987, to 1.34 in 2000. Direct
  employment created by the firms of the sample
  privatized during the 80s decreased from 0.41
  to 0.28.
• Direct employment in the sample of firms
  transferred during the 90s decreased by 32
  during the last years. This may reflect previous
  overstaffing as well as deeper and quicker
  outsourcing processes. There are no figures
  available for indirect employment resulting from
  the externalization of operations or increased
  investments.

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THE IMPACT OF PRIVATIZATION UPON WORKERS AND
LABOR FORCE Conclusions

• Workers must be involved in privatization
  processes. In Chile, the success of the process
  is explained by the direct involvement of the
  workers, as well as by the execution of previous
  agreements that directly benefited them, for
  example
• Participation in the firms shareholding.
• Privatizations Success bonuses.
• Extra compensation in case of discharge, during a
  specific time period, protecting the
  vulnerability of elder or less skilled workers.
• Overall, special benefits well above those
  granted by state-owned firms.

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THE IMPACT OF PRIVATIZATION UPON WORKERS AND
LABOR FORCE Conclusions

• Investments made in 2000 in the sample of firms
  privatized in the 80s exceed by 450 those made
  in 1987, prior to their privatization, while in
  1995 they had been 660 greater.
• Investment increased from US 71 million to US
  221 million in water utilities privatized in the
  90s, with a positive impact upon the countrys
  employment.
• Impact on employment does not depend on whether
  the firms shares are controlled by the State or
  by the private sector, rather on the growth of
  the industry, and on the ability to investment
  of such firms.
• For example, telecommunications industrys sales
  in 1987 when the state-owned firms were
  privatized amounted to US 308, while they
  reached US 2,613 million in 2000. However, this
  requires investment volumes that the State was
  unable to afford.