The Impact of Privatisation on Labour

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The Impact of Privatisation on Labour

• John Nellis
• Center for Global Development
• USA
• OECD/Republic of Turkey
• Conference on Privatisation, Employment
  Employees
• Istanbul, October 2002

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Privatisation..

• Improves operating financial performance
• Positive macroeconomic impact
• Signals markets of extent credibility of reform
  But
• Complex, contentious, highly politicized action
• Why?

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The privatisation dilemma

• Direct benefits to few
• Mass benefits diffused, medium term
• Direct costs concentrated, short term
• Winners dispersed, silent unorganized
• Losers visible, vocal, intense well-organized
• Politics focus on latter

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(No Transcript)
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Sri LankaAttitudes Towards Privatization
(2000)
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IN RUSSIA, 2/3 INTERVIEWED SAID THEY LOST MORE
THAN GAINED FROM PRIVATIZATION 2001 1600
respondents only 5 said opposite
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Labours view of privatisation

• Hurts workers, benefits local elite foreigners
• Imposed by IFIs
• SOEs could be profitable (prices, mngt.)
• Few jobs outside public sector
• Pay terms much worse
• Severance payments wasted
• Money better spent on reviving SOEs

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PROPOSITION 1

• SOE reform, prior to or instead of
  privatisation, likely reduces jobs

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Examples

• Argentina RR from 92K to 18.6K before
  privatisation
• Brazil RR from 160K to 42K before privatisation
• Korea Tobacco from 12.3K to 8.6K
• Sydney Water Corp. from 12.7K to 6.7K

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Implication

• SOEs overstaffed any serious reform, not just
  privatisation, likely to decrease employee s

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Overstaffing Sri Lanka-1992

• Company
• Electricity Board 51
• Railways 48
• Sugar Corp. 86
• Petroleum 40
• Cement 1 46
• Cement 2 63
• Shipping 43
• Average 53

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PROPOSITION 2

• Privatisation often followed by
  additional----over above pre-sale
  layoffs----reductions of workforce

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Examples

• In 27 empirical studies (ILO)
• 14 post-sale job losses
• (averaging 27)
• 2 significant increases
• 11 little or no change

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More examples

• Additional 17 cases
• Losses post-sale in seven, average 44.6
• Gains post-sale in four, average 23
• No numbers or no change in rest

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PROPOSITION 3

• Layoffs highest in areas of declining demand,
  world oversupply where technology shifts
  increase competition without boosting core
  business

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Examples

• Railways
• Mines, especially coal mines
• Steel

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Conversely, large unsatisfied demand can lead to
job gains in post-sale period e.g.,
telecommunications
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Impact can be huge...

• Brazil RR 42,000 at start of priv. process to
  24,000 at moment of sale, to 9,700 24 months
  after sale------94 decrease from pre-sale peak
  of 160 K

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PROPOSITION 4

• Employment losses significantly greater than
  gains
• (some exceptions Chile, Nepal, Cote dIvoire)

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Privatisation Simple Analytics
Gain in employment
Job losses (prior restructuring)
Employment
A Pre-privatisation
D
B privatisation
C Recovery
Time
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ARGENTINA

• LABOR FELL BY 150k IN 7 PRIVATIZED UTILTIES
• 150k 3.6 LABOR in BA
• 150k .03 TOTAL LABOR FORCE but.
• GENERAL UNEMPLOY 6 1990 TO 14.3 1997

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MEXICO

• General decrease in of workers
• Reductions still small in
• Reductions small relative to overall workforce
  (SOEs 2 of workers)
• 55 of dismissed found formal sector jobs within
  1 yr.

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BOLIVIA

• Reduction in employment associated with
  capitalization
• Again, absolute numbers small
• Small in relation to workforce size
• Conclusion capitalization does not account for
  substantial general rise in unemployment starting
  in 1998

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PROPOSITION 5

• Transition economies a special case of enormous
  job losses before after privatisation

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Examples

• DDR 3.5 mn workers in 8 K companies in 7/1990
• Down to 1.5 mn by 1995-96

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PROPOSITION 6

• Severance payments other enticements to leave
  (early retirement, share ownership) tend to be
  more generous than law requires

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Expensive severance packages

• Argentina RR workers----average payout 12,000
  U.S.
• Sri Lanka---from 17 to 53 months salary (last for
  40 yr.. old with 20 yrs. service)

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PROPOSITION 7

• Workers in privatized firms Generous terms
  salaries, position guarantees, guarantees of
  fringe benefits----but, longer hours, decreased
  job security union power

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PROPOSITION 8

• Mid-management s down sharply post-sale
  loss higher than for blue collar workers

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EXAMPLES

• Mexico, Pakistan, several transition economies,
  Sri Lanka, Nepal sub-Saharan Africa
• Decreases due to higher costs politicized
  nature of past managerial appointments?

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PROPOSITION 9

• Approached openly in advance of transaction,
  by authorities willing to bargain, workers will
  participate constructively in the process---
  even large reductions can be achieved peacefully

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PROPOSITION 10

• Overstaffing and worker opposition need not be
  an absolute obstacle to a sound transaction

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Brazil RR

• 1995, 42,000 workers
• Govt./WB program reduces to 23,712
• 2/3 by voluntary retirement
• Pension supplements severance (av. Cash value
  8,000)
• Training placement program not used much
• 1998 survey, only 10 still unemployed
• 53 earning lt RR 27 gt 20 same