Labor Redundancy, Retraining, and Outplacement During Privatization: The Experience of Brazil' Federal Railway

Abstract

When Brazil' Federal Railway was privatized, the team in charge of privatization made a significant effort to complement the incentive for voluntary reduction with an elaborate menu of training options. How did it work?

One of the most complex challenges of infrastructure privatization is its impact on employment. Often (but not always) private operators' main approach to cost-cutting is labor reduction. Private operators cannot afford the low levels of labor productivity typical in public companies if they are to be competitive and to deliver on their contractual obligations to provide cheaper, more reliable infrastructure services. But labor issues are so sensitive that government's early, direct involvement is seen as a way to address what potential investors see as a risk of privatization as well as to address the social concerns of the population, including the workers.

When Brazil's Federal Railway was privatized, the team in charge of privatization made a significant effort to complement the incentive for voluntary reduction with an elaborate menu of training options. Estache, de Azevedo, and Sydenstricker describe this experience in dealing with labor redundancy problems. They discuss the design of the program, highlight the connections between its components, and assess the program's achievements.

All things considered, they conclude, this staff reduction program was reasonably successful. The aimed - for improvements in productivity were achieved without major problems through a government-stimulated and -sponsored combination of early retirement and voluntary retrenchment. The concessionaire was willing to make quick decisions about the number of involuntary retrenchments it wanted to make, which helped sustain the momentum created by the government's prompt implementation of its own decisions and the fair treatment of workers.

The main problems came from the underestimate of time needed to agree on the strategy for implementing the training and outplacement programs. Informal evidence suggests that most workers found new jobs before many of the training programs were available. And the strategy adopted gave workers a good incentive (one month's pay) to sign up for the courses but provided little incentive for workers to show up, since they were paid up front.

This paper - a product of the Governance, Regulation, and Finance Division, World Bank Institute - is part of a larger effort in the institute to increase the understanding of infrastructure regulation. Antonio Estache may be contacted at [e-mail].