Privatization and Labor Force Restructuring around the World

Alberto Chong and Florencio Lopez-de-Silanes ()

No 1460, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: Critics of privatization argue that poor labor force restructuring is a key concern and that governments should establish better retrenchment programs. Using new data from a random sample of 400 companies in the world, we test competing theories about the wisdom of retrenchment programs and their effect on prices paid by buyers and re-hiring policies by private owners after privatization. Our results show that adverse selection plagues retrenchment programs carried out by governments before privatization. Controlling for endogeneity, several labor retrenchment policies yield a negative impact on net privatization prices. In confirmation of the adverse selection argument, various types of voluntary downsizing lead to a higher frequency of re-hiring of the same workers by the new private owners. Compulsory skill-based programs are the only type of program that is marginally associated with higher prices and lower re-hiring rates after privatization, but the political and economic costs of this policy may make it somewhat impractical. A qualified do not intervene appears to be the safest bet with respect to labor retrenchment before privatization.

Keywords: WP-485 (search for similar items in EconPapers)
Date: 2003-02
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Citations: View citations in EconPapers (4)

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Working Paper: Privatization and Labor Force Restructuring Around the World (2003)
Working Paper: Privatization and labor force restructuring around the world (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:1460

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