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The Impact of Privatisation on Labour

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

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The Impact of Privatisation on Labour

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  1. 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

  2. Privatisation….. • Improves operating & financial performance • Positive macroeconomic impact • Signals markets of extent & credibility of reform But: • Complex, contentious, highly politicized action Why?

  3. 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

  4. Sri Lanka:Attitudes Towards Privatization (2000):

  5. IN RUSSIA, 2/3 INTERVIEWED SAID THEY LOST MORE THAN GAINED FROM PRIVATIZATION 2001; 1600 respondents; only 5 % said opposite

  6. 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

  7. PROPOSITION #1 SOE reform, prior to or instead of privatisation, likely reduces jobs

  8. 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

  9. Implication: SOEs overstaffed; any serious reform, not just privatisation, likely to decrease employee #s

  10. 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 %

  11. PROPOSITION # 2 Privatisation often followed by additional----over & above pre-sale layoffs----reductions of workforce

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

  13. 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

  14. PROPOSITION # 3 Layoffs highest in areas of declining demand, world oversupply & where technology shifts increase competition without boosting core business

  15. Examples • Railways • Mines, especially coal mines • Steel

  16. Conversely, large unsatisfied demand can lead to job gains in post-sale period; e.g., telecommunications

  17. 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

  18. PROPOSITION # 4 Employment losses significantly greater than gains (some exceptions: Chile, Nepal, Cote d’Ivoire)

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

  20. 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

  21. 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.

  22. 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

  23. PROPOSITION # 5 Transition economies a special case of enormous job losses before & after privatisation

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

  25. PROPOSITION # 6 Severance payments & other enticements to leave (early retirement, share ownership) tend to be more generous than law requires

  26. 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)

  27. PROPOSITION # 7 Workers in privatized firms: Generous terms & salaries, position guarantees, guarantees of fringe benefits----but, longer hours, decreased job security & union power

  28. PROPOSITION # 8 Mid-management #s down sharply post-sale; % loss higher than for blue collar workers

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

  30. 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

  31. PROPOSITION # 10 Overstaffing and worker opposition need not be an absolute obstacle to a sound transaction

  32. 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

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