Privatization and Labor Force Restructuring Around the World

43 Pages Posted: 8 Jan 2003

See all articles by Alberto Chong

Alberto Chong

University of Ottawa

Florencio Lopez de Silanes

SKEMA Business School; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2002


Some 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 sample of 400 companies in the world, Chong and Lopez-de-Silanes test competing theories about the wisdom of retrenchment programs and their effect on prices paid by buyers, and rehiring policies by private owners after privatization. The 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 rehiring 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 rehiring rates after privatization, but the political and economic costs of this policy may make it somewhat impractical. While a qualified non-intervention policy appears to be the safest bet in labor retrenchment before privatization, another one might be to set up a social safety net or labor reallocation program before privatization, and then let the new private owners decide who is redundant and who is not. Setting up the program before privatization may help with the political viability of the process and letting the new owners manage the retrenchment may help avoid adverse selection.

This paper - a product of Public Services, Development Research Group - is part of a larger effort in the group to understand the labor implications of public sector reform. The study was funded by the Bank's Research Support Budget under the research project "Public Sector Downsizing" (RPO 683-69).

JEL Classification: G32, H10, J45, O1

Suggested Citation

Chong, Alberto and Lopez de Silanes, Florencio, Privatization and Labor Force Restructuring Around the World (December 2002). Available at SSRN:

Alberto Chong (Contact Author)

University of Ottawa ( email )

2292 Edwin Crescent
Ottawa, Ontario K2C 1H7

Florencio Lopez de Silanes

SKEMA Business School ( email )

Avenue Willy Brandt, Euralille
Lille, 59777

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics