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LABOR ISSUES IN PRIVATIZATION AND ENTERPRISE REFORM. Sunita Kikeri Private Sector Advisory Services. Labor Issues in Privatization. WHAT ARE THE ISSUES? WHAT ARE THE KEY ELEMENTS OF A LABOR STRATEGY? WHAT ARE THE MAIN LESSONS?. Key Issues….1. Privatization a global phenomenon
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LABOR ISSUES IN PRIVATIZATION ANDENTERPRISE REFORM Sunita Kikeri Private Sector Advisory Services
Labor Issues in Privatization • WHAT ARE THE ISSUES? • WHAT ARE THE KEY ELEMENTS OF A LABOR STRATEGY? • WHAT ARE THE MAIN LESSONS?
Key Issues….1 • Privatization a global phenomenon • Improves operating and financial performance • Macroeconomic impact is positive • Positive welfare consequences • But labor a major concern
Key Issues…..2 • Overstaffing • 30 to 50 percent, sometimes more • Generous pay & benefits • At lower levels in particular • Overtime • Restrictive labor contracts • Labor allocation • Sub-contracting
Key Issues….3 • Fear of layoffs and loss of benefits • Fear of contractual changes • Fear of reduced union influence • Led to union opposition • But: • Little or no change in some cases • New employment • Higher wages • Restructuring with or without privatization
Elements of a Labor Strategy • Labor Market Policies and Regulations • Private job creation, labor mobility • Managing the Process • Consultation and participation • Restructuring • Timing and menu of options • Social Safety Net • Severance, retraining, public works
Consultation & Participation • Early, open, transparent • Communication strategy focused on: • Necessity for reforms and economy-wide benefits • Social safety net measures • Communication strategy for public at large • Involvement of unions in implementation • Employee share ownership schemes
Example: PhilippinesMWSS, Manila • Excess labor force • 8,000 employees in 1994 • 13 employees/1000 connections • High wages • Rigid employment practices • 42% reduction in employment in 18 months: • Aug. 1996: 7,400 employees • Aug. 1997: 5,057 taken by concessionaires • Jan. 1998: 4,306 regularized
MWSS…..1 • Restructuring in three phases • Phase 1: August to December 1996 • 7,370 employees • Under MWSS management • Discussions with employee association • Study tour to Buenos Aires • Attractive retirement package • 1.5 to 2.5 months for each year of service • Average package: $20,000 • Total cost: $38.5 million (2000 plus employees)
MWSS…..2 • Phase 2: January to August 1997 • 5,340 employees after previous ERP • Between bidding and takeover • Identification of employees for 2 concessions • 5,057 stayed: 6 month probationary contract • 190 left: Same retirement benefits ($3.8 million) • 90 transferred to regulatory body • Employee orientation sessions • Salary and benefits equal to MWSS
MWSS…..3 • Phase 3: August 1997 to January 1998 • 5,057 employees • Probationary period managed by concessionaires • 650 voluntarily separated with same benefits • 100 terminated with same benefits ($2 million) • Livelihood/training seminars, job referral network • 4,306 regularized based on performance appraisal system • Wages same • Efforts to improve morale
Lessons Learned • Address labor issues early in the process • Communicate with stakeholders and public • Develop mix of restructuring options • Establish severance policy • Develop targeted redeployment support • Provide gain-sharing mechanisms • Promote labor market flexibility