IMPACT OF PRIVATIZATION
OVER LABOR FORCE
In a Sample of Privatized Firms in Chile
CORFO, the Chilean Economic Development Agency
SOE’s Administration & Privatisation Committee, SEP
Carlos Mladinic, Chairman, SEP, cmladinic@corfo.cl
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 country’s 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.
BENEFITS FOR WORKERS
Privatizations during the 90’s
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.- CORFO’s 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
BENEFITS FOR WORKERS
Privatizations during the 80’s
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
consumption.
rate
credit
for
personal
CAP Investments and Workers
60
40
20
0
10,000
5,000
0
1987
1995
Inversiones
2000
Trabajadores
No. of
Workerss
US$
Million
Investme
nts
COMPAÑÍA de ACERO del PACIFICO C.A.P (Iron Mines
& Steel Mill)
Trend for investments and Labor Force
Compañía de Telefonos de Chile CTC (Basic Telecom
Company)
Trend of investments and labor force
600
500
400
10,000
8,000
6,000
300
200
100
0
4,000
2,000
0
1987
1995
Inversiones
2000
Trabajadores
No. of Workers
US$ Million
Investments
CTC Investments and Workers
Compañía Chilena de Electricidad, CHILECTRA
(Power Utility)
Trend Of Investments And Labor Force
US$ Million
Investments
50
3.000
2.500
2.000
1.500
1.000
500
0
40
30
20
10
0
1987
Inversiones
1995
2000
Trabajadores
No. of Workers
Chilectra Investments and Workers
Empresa de Telecomunicaciones de Chile ENTEL (Long
Distance Telecom Company)
Trend of Investments and Labor Force
140
120
100
80
60
40
20
0
2.000
1.500
1.000
500
0
1987
1995
Inversiones
2000
Trabajadores
No. of Workers
US$ Million
Investments
Entel Investments and Workers
LAN Chile (Flag Airline)
Trend of Investments and Labor Force
60
50
40
30
20
10
0
7.000
6.000
5.000
4.000
3.000
2.000
1.000
0
1987
Inversiones
1995
2000
Trabajadores
No. of Workers
US$ Million
Investments
LAN Chile Investments and Workers
IMPACT OF PRIVATIZATION UPON LABOR FORCE
IN WATER UTILITIES
Total Esval workforce
Outsourced workforce
Public Works workforce
Total Aguas Andinas workforce
Outsourced workforce
Public Works workforce
1999
720
325
750
1999
1.550
150
2.100
2000
529
446
650
2000
1.342
150
3.400
2001
478
784
1.600
2001
1.174
250
3.800
2002
376
833
3.000
2002
1.202
300
4.000
A comparison: privatizations during the ‘80s and ‘90s:
Sales values got by SEP
Privatizations
during the 80's
Endesa
Gener
Chilectra
Chilquinta
Iansa
Entel
Soquimich
Cap
Total
Privatizations
SEP
Edelaysen
Esval
Emos
Essal
Essel
Essbio
Essam
Total
Stake sold
Sales Value
60,9%
95,1%
81,6%
84,8%
80,6%
62,0%
93,0%
59,6%
521,4
88,3
117,0
29,1
48,5
124,5
208,7
68,9
1.206,4
Stake sold
Sales Value
91,0%
40,0%
42,0%
51,0%
45,0%
51,0%
-
43,0
104,9
918,7
93,6
122,4
283,0
178,9
1.744,5
Company's
net worth
856,2
92,8
143,4
34,3
60,2
200,8
224,4
115,6
1.727,7
Company's
net worth
47,3
314,0
1.755,3
183,5
238,8
586,0
178,9
3.303,8
N° Times
Profit
9
4
4
5
7
4
4
4
N° Times
Profit
56
22
37
60
58
46
46
OUTSOURCED LABOR FORCE
FIRMS PRIVATIZED IN THE 80’s
Outsourced workers
Cap
CTC
Chilectra
Lan Chile
Entel
Total Outsourced Workers
1987
0
6.168
145
N/I
1.330
7.643
1995
26
38.304
1.238
N/I
5.846
45.414
2000
44
51.549
2.283
N/I
7.698
61.574
IMPACT UPON LABOR FORCE
FIRMS PRIVATIZED IN THE 80’s
Workers/Firms with respect toTotal Work Force
1,6%
1,4%
1,2%
1,0%
0,8%
0,6%
0,4%
0,2%
0,0%
outsourced labor + own workers
Own workers
1987
1995
Years
Internos
2000
Inter + Exter
FIRMS PRIVATIZED IN THE 90’s
WATER UTILITIES
Trend of Investments in US$ million and workers
1997
Esval Investments
Esval Workers
Emos Investments
Emos Workers
Essal Investments
Essal Workers
Essel Investments
Essel Workers
1998
1999
2000
2001
57
67
19
15
57
736
698
720
529
487
49
47
37
62
124
1.836
1.692
1.550
1.342
1.202
12
8
8
10
32
311
315
348
244
234
9
9
7
3
14
324
324
321
245
73
WATER UTILITIES
TREND OF INVESTMENTS AND LABOR FORCE
US$ Million
250
200
150
100
50
0
3.500
3.000
2.500
2.000
1.500
Total Investments
1.000
500
0
1997 1998 1999 2000 2001
Año
Total Inversiones
Total Trabajadores
No. of Workers
Workers and Investments in Water Utilities
THE IMPACT OF PRIVATIZATION UPON WORKERS
AND LABOR FORCE
Conclusions
• 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 80’s, 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 80’s decreased from 0.41% to 0.28%.
• Direct employment in the sample of firms transferred during
the 90’s 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.
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 firm’s shareholding.
 Privatization’s 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 stateowned firms.
THE IMPACT OF PRIVATIZATION UPON WORKERS
AND LABOR FORCE
Conclusions
• Investments made in 2000 in the sample of firms privatized in the
80’s 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 90’s, with a positive impact upon the
country’s 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 industry’s 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.