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Impact of Privatisation on Labour: Benefits, Costs, and Challenges

This article examines the impact of privatisation on labour, discussing the benefits, costs, and challenges associated with this process. It highlights examples from various countries and provides insights into job losses, severance payments, and changes in worker terms and conditions.

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Impact of Privatisation on Labour: Benefits, Costs, and Challenges

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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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