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
Privatisation…..
• Improves operating & financial
performance
• Positive macroeconomic impact
• Signals markets of extent &
credibility of reform
But:
• Complex, contentious, highly
politicized action
Why?
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 & wellorganized
• Politics focus on latter
percent who disagree or disagree strongly that
privatization has been beneficial
70%
60%
50%
40%
1998
30%
2000
20%
10%
0%
Argentina
Bolivia
Mexico
Sri Lanka:
Attitudes Towards
Privatization (2000):
Social Life
Economic Stability
Improved
Worsened
Cost of Living
Poverty Level
Standard of Living
0
20
40
60
80
100
IN RUSSIA, 2/3
INTERVIEWED SAID THEY
LOST MORE THAN GAINED
FROM PRIVATIZATION
2001; 1600 respondents; only 5 % said opposite
Labour’s 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
PROPOSITION #1
SOE reform, prior to or instead
of privatisation, likely reduces
jobs
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
Implication:
SOEs overstaffed; any serious
reform, not just privatisation,
likely to decrease employee #s
Overstaffing: Sri Lanka-1992
Company
Electricity Board
Railways
Sugar Corp.
Petroleum
Cement 1
Cement 2
Shipping
Average
%
51
48
86
40
46
63
43
53 %
PROPOSITION # 2
Privatisation often followed by
additional----over & above presale layoffs----reductions of
workforce
Examples:
In 27 empirical studies (ILO):
– 14: post-sale job losses
(averaging 27%)
– 2:
significant increases
– 11: little or no change
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
PROPOSITION # 3
Layoffs highest in areas of declining
demand, world oversupply & where
technology shifts increase
competition without boosting core
business
Examples
• Railways
• Mines, especially coal mines
• Steel
Conversely, large unsatisfied
demand can lead to job gains
in post-sale period; e.g.,
telecommunications
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
PROPOSITION # 4
Employment losses significantly
greater than gains
(some exceptions: Chile, Nepal, Cote
d’Ivoire)
Gain in employment
Job losses
(prior restructuring)
Employment
Privatisation: Simple Analytics
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
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.
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
PROPOSITION # 5
Transition economies a special
case of enormous job losses
before & after privatisation
Examples
• DDR: 3.5 mn workers in 8 K
companies in 7/1990
• Down to 1.5 mn by 1995-96
PROPOSITION # 6
Severance payments & other
enticements to leave (early
retirement, share ownership)
tend to be more generous than
law requires
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)
PROPOSITION # 7
Workers in privatized firms:
Generous terms & salaries, position
guarantees, guarantees of fringe
benefits----but, longer hours,
decreased job security & union
power
PROPOSITION # 8
Mid-management #s down
sharply post-sale; % loss higher
than for blue collar workers
EXAMPLES
• Mexico, Pakistan, several transition
economies, Sri Lanka, Nepal & subSaharan Africa
• Decreases due to higher costs &
politicized nature of past managerial
appointments?
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
PROPOSITION # 10
Overstaffing and worker
opposition need not be an
absolute obstacle to a sound
transaction
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 < RR; 27% >; 20% same