Job losses are the most obvious adverse impact on labor. This section focuses on the impact of PPI on the number of workers employed, beginning with a brief introduction and then examining the evidence sector-by-sector.
Private participation in state-owned enterprises has a variable impact on job numbers. There are several reports of positive net impacts of privatization programs in general. In the infrastructure sector, however, PPI is seldom associated with short-term increases in employment in the enterprises directly affected and is more usually associated with short-run job losses. These losses can be substantial because of the large size of the enterprises concerned and the unusually high level of labor redundancy in many infrastructure enterprises (box 2.2).
Many factors play an important role in determining the extent, pace, and timing of employment reductions. Although there are numerous country- and enterprise-specific circumstances, some patterns exist. For example, sectors such as rail and ports have generally experienced higher levels of downsizing than have the telecommunications and water sectors.
In Argentina, a recent review of five major privatization transactions (telecoms, electricity, gas, water and sanitation, and energy) found that close to 30 percent of employees in the five enterprises lost their jobs by the time privatization took place. The reductions ranged from 3 percent in telecoms to 72 percent in energy....Drastic employment cuts were also made in other sectors, including railways and steel. Low productivity and interference by labor unions in management decisions had made the cost of keeping loss-making enterprises in the state sector so high that the government was willing to undertake the necessary employment reforms to facilitate privatization.
Source: Kikeri 1998, p. 6.
Overall, the most severe impact of PPI on employment numbers has been felt in railway enterprises. There are five potential explanations for this:
There are very few railways that are not exposed to competition from road transport. This is one factor that spurs restructuring of the rail sector.
Some of the largest reductions in employee numbers have occurred in South American railways.
The result has been high levels of downsizing. In Argentina, where the railway was restructured into several separate freight and passenger networks and concessioned in 1994 and 1995, employment fell from around 95,000 in 1989 to approximately 17,000 in 1997. (In 1960 it had been as high as 200,000.) The scale of job loss associated with rail PPI in Argentina is typical for Latin America. In Chile, where there had already been a cut of 75 percent in the railway labor force between 1973 and 1990, the number was halved again in the course of privatization from 1990 to 1995. Brazil's experience was similar (see box 2.3).
In Africa, rail PPIs have also been associated with significant reductions in employment numbers, although not on the scale of Latin America where overstaffing appears to have been particularly high. Figure 2.1 shows how the work force adjustment in the joint railway of Côte d'Ivoire and Burkina Faso took place at the time of a major restructuring exercise in 1988, and then again at the time of PPI in 1995.
At the beginning of the PPI process, in 1995, the main state-owned railway company in Brazil, RFFSA, employed 42,000 people, down from 110,000 workers 20 years earlier. In preparation for the concessions that began in 1996 and 1997, following RFFSA's restructuring into six regional businesses, more than half of those workers left, 4,000 of them through voluntary redundancies and 18,000 through other means.
The privatization team recognized that these targeted reductions in labor force were by no means final. When all the regional areas had been privatized, the organization of each system would probably change and would likely lead to additional reductions in staff, changes in skills mixes, and improved productivity.
That proved to be true. The work force was halved again, to a total of around 11,000, within a year of the start of concessions, meaning that since the beginning of the privatization process about 75 percent of the jobs had been cut.
Source: Estache, Schmitt de Azevedo, and Sydenstricker 2000.
Figure 2.1: Employment in Côte d'Ivoire and Burkina Faso Rail, 1980–2000
Source: Martin and Micoud 1997; SITARAIL data.
Job losses have also occurred in railways that have stayed in the public sector.
Job losses apparently associated with PPI do, however, need to be seen in the context of the sector as a whole. There have been substantial reductions even where rail has remained in the public sector. In Denmark's national rail company, for instance, employment fell by nearly 29 percent in one year, from 1996 to 1997. Moreover, focusing on the enterprise rather than the sector can be misleading. New jobs can be created with contractors and subcontractors without showing up in the personnel numbers of the post-PPI companies themselves. For example, six years after the concessioning of Bolivia's Eastern and Andean railroads, more than 50 percent of the employment in the sector is provided through outsourced contractors (see Valdez 2002).
Valdez 2002 (a case study by the Public-Private Infrastructure Advisory Facility)
The port industry has been heavily influenced by global competition, technological change, and containerization. Port workers' trade unions have opposed port reform because both job losses, casualization of labor (the shift to individual temporary contracts with less legal protection for workers), and changes in working conditions are of great concern (box 2.4). Whether or not the comments made in box 2.4 are a fair reflection of what has happened in all ports, they are typical of the perceptions of union leaders in ports–and indeed other infrastructure sectors.
An International Labour Organization (ILO) survey of ports suggested that overstaffing was most serious where there are port labor pools–a measure that protects against casualization of labor– and that overstaffing was greater in operations than in administration. There has been a dramatic decline in employment in such ports. For example, in the port of Buenos Aires, Argentina, the suspension of the existing labor agreements led to a 50 percent reduction of the number of workers. Port reforms in Australia, France, and the United Kingdom cut employment levels by 40 to 60 percent (ILO 1996).
The Public-Private Infrastructure Advisory Facility (PPIAF) Port Reform Toolkit is a comprehensive source of information on all aspects of port reform, including labor issues.
The PIAFF Port Reform Toolkit can be downloaded through the Internet from http://www.ppiaf.org/.
Deregulation, privatization, flexibility and casualization have become the magic words and the solutions to all shortcomings. They are supposed to create wealth for all, but the real and practical consequences are mass dismissal of workers, worsening of working conditions and deterioration of health and safety....
"In nearly all cases, investments in new port infra- and superstructures coincided with downward pressure on working conditions and employment in order to cut labor costs as much as possible. Deregulation, privatization and growing competition are leading to this downward pressure and subsequently to the increasing use of nonunion labor, casualization of labor and flexibilisation of labor relations and working conditions, all of which are not in the interests of workers" (International Transport Workers' Federation 1997, p. 9-10).
Although job losses are common, some ports have seen net increases in employment following reform and PPI.
Many government-owned ports face these issues– often in combination–and that can affect employment conditions and labor–management relationships in various ways (see table 2.1 and the PPIAF Port Reform Toolkit). Where the right factors come together, however, there can be net job creation in the ports sector (box 2.5).
| Employment effect | Employment condition | Labor–management relationship |
|---|---|---|
|
|
|
Source: Adapted from UNCTAD 1995.
In 1993 the Mexican government passed a law that enabled reform of Mexico's ports. It dismantled the public agency PuertosMexicanos, which was responsible for all ports, and provided for the decentralization of port management, the privatization of port operations, and the encouragement of competition among ports.
One element of the reform was the transformation of national collective bargaining into firm-level bargaining by the new private operators, so allowing these firms to negotiate with their workers according to local and business conditions. As a result the number of port workers employed by the public sector was reduced, but total port employment by private firms is rising because of an increase in the activity of ports.
For example, the port of Manzanillo had 2,100 workers before the reform, and at the end of 1997 the number had doubled. In Veracruz, with an initial number of 6,647 employees, the increase was not so spectacular in relative terms, but employment had risen to 8,260.
Source: Estache, González , and Trujillo 2001
Expansion of the supply network has helped maintain employment numbers in the water sector. Even so, 25 to 40 percent reductions in employee numbers have been reported.
Taking account of contract workers, employment rose by 10 percent in the case of Buenos Aires water.
Private participation in water infrastructure often involves investment plans that propose rapid expansion of the service area. This expansion helps protect employment numbers because any surplus can be absorbed. Nonetheless, many state-owned water companies have low labor productivity, and the need to improve performance may necessitate work force reductions.
In the Czech Republic, for example, privatization of water supply and sewerage utilities began in 1992 and within five years the number of workers in the water supply companies had fallen by 26 percent. Similarly, in Hungary there was a 46 percent reduction in staff in one water company (ILO 1999b).
Employment reductions of a similar scale and range are associated with water PPIs in Africa, Asia, and Latin America (table 2.2). In Buenos Aires the numbers of permanent employees fell by about half to around 4,000. The consortium that won the concession for the service also reported, however, that it increased its indirect employment through contracts associated with its infrastructure expansion by as many as 5,000, producing a net increase of about 10 percent (Aguas Argentinas, personal communication).
| Buenos Aires | Cartagena de Indias | Santiago | ||||
|---|---|---|---|---|---|---|
| Before PPI | 1995 | Before PPI | 1995 a | Before PPI | 1995 | |
| Operating revenues (US$ millions) | 230 | 385 | 10 | 12 | 60 | 130 |
| Number of employees | 7,450 | 4,250 | 1,200 | 385 | 1,717 | 1,945 |
| Employees per thousand connections | 6.4 | 3.3 | 14.0 | 4.5 | 2.1 | 1.9 |
a. Data for six months of operation. Source: de Luca 1998b, p. 187.
The electricity sector has seen substantial reductions in the work force. However, these have occurred both in privatized firms and those staying in public ownership.
In the electricity sector the need for rapid investment and expansion of infrastructure also reduces the extent of job losses. Nonetheless, the ILO reported employment cuts of more than 20 percent of the work force in a number of countries.
For example, in Côte d'Ivoire employment fell by 22 percent over a 5-year period following the start of a 15-year concession. The impact appears to have fallen particularly heavily on middle management. The new management decided to "flatten" the organization by reducing the number of hierarchical layers from 18 to 5.
As in other sectors, job losses also take place under public ownership, without PPI. In South Africa, for example, there was a 40 percent reduction in the number of workers employed by the publicly owned electricity utility Eskom over the six-year period from 1993 to 1999.
In Latin America's power sector the level of employment reductions appears to have been larger than elsewhere, which (as in other sectors) reflects the extent of previous overstaffing in those countries. In Argentina the ILO has reported that 22 percent of the work force was cut in the run-up to privatization and another 28 percent was cut over a similar period following privatization (table 2.3).
A similar pattern has been seen in Brazil (table 2.4 indicates the extent of reductions there). This also shows that work force adjustments can be substantial even where there is no PPI.
| Company | Number of employees | Percentage change | |
|---|---|---|---|
| At time of privatization (1990) | At time of privatization (1993) | ||
| Central Costanera | 795 | 661 | -16.8 |
| Central Dock Sud | 75 | 60 | -20.0 |
| Central Pedro de Mendoza | 59 | 31 | -47.5 |
| Central Puerto | 1,115 | 798 | -28.4 |
| Edelap | 741 | 542 | -26.8 |
| Edenor | 6,443 | 4,164 | -35.3 |
| Edesur | 6,529 | 5,051 | -22.6 |
| Total | 15,747 | 11,307 | -28.4 |
Source: de Luca 1998b, p. 194.
| Company | Employees before restructuring (year) | Employees after restructuring (year) | Percentage change |
|---|---|---|---|
| CEMIGa | 19,981 (1991) | 14,800 (1997) | -26 |
| CERJ | 5,700 (1996) | 2,160 (1997) | -62 |
| COELBA a | 7,231 (1992) | 4,763 (1997) | -34 |
| ESCELSA | 2,500 (1994) | 1,717 (1997) | -30 |
| Light | 10,658 (1995) | 6,541 (1996) | -38 |
Note: Data provided to ILO by the companies named.
a. In these two cases the "after" figure was before PPI; in the other cases, PPI occurred between the years indicated.
Source: de Luca 1998b.
Countries that have liberalized and allowed new private sector entrants have seen significant levels of net job creation in the telecommunications sector–on average, 21 percent in newly competitive markets.
In the telecommunications sector the natural monopoly characteristics that underpinned state ownership have largely disappeared. Technology has brought dynamic changes, including increased convergence with computing and media, while the market has become more segmented between long-distance, data, mobile, and local telephone services, for example.
New service providers have entered the market since the mid-1980s, including specialist cellular operators and Internet service providers. Therefore, although typically there has been a reduction in the number of workers employed by privatized telecommunications companies, growth in the sector among new entrants has generated more jobs than the numbers lost in the former public monopoly enterprise.
A recent study showed that from 1990 to 1994, employment increased by an average of 21 percent in newly competitive telecommunications markets in 26 Asian and Latin American countries, whereas countries that retained a monopoly showed only a 3 percent increase (Petrazzini 1996a).
The nature of the new jobs in telecommunications– in terms of the skills, experience, and cultural approaches they require–has changed greatly. This means that retrenched workers from privatized telecommunications companies are not necessarily well equipped for the new jobs that have been created (box 2.6). A great deal of retraining can be required, and in some cases that challenge has been tackled in the context of PPI. In the case of Sri Lanka Telecom, for example, none of the 800 workers was retrenched but many were retrained in new skills suited to the new technologies. In India, too, a freeze on recruitment was linked to a program of retraining in the main telecommunications utility, Bharat Sanchar Nigam Limited.
The ILO has concluded that privatization and liberalization "have generally resulted in job losses among traditional telecommunications services operators in OECD [Organisation for Economic Co-operation and Development] countries, in which markets are considered mature, with generally satisfied demand for basic services, and competitive offers of new services. Job creation in industrialized countries is mainly due to the emergence of new enterprises or services."
However, “in low-to-middle-income countries and those in transition, the supply of basic services has not yet reached saturation point and is sometimes far below it; employment creation is hindered by lack of solvent demand (demand in general is not lacking); and growth in the supply of telecommunications services is often impeded by local shortages of capital, although mobile communications are experiencing huge growth in many developing countries.
"While employment has fallen and continues to fall among the main traditional operators in mature markets, this situation is clearly not true for operators (whether privatized or not) in countries continuing to construct and/or modernize their network.
"Thus, in the Republic of Korea, the partial privatization of telecommunications and the termination of public employee status at the end of the 1980s did not result in staff reductions. For some years the opposite happened while the market underwent considerable expansion–in the years following privatization, the number of employees in Korea Telecom increased by 32 percent, but fell back by 12 percent following the period 1997-99, with the Asian financial crisis.
"In Mexico, the privatization of Telmex did not in itself result in job cuts–following an agreement with the trade unions there were no layoffs, and the work force increased (on paper at least) by 30 percent in the period 1997-99."
As well as capital scarcity, many countries have also suffered from telecommunications skills shortages, which, says the ILO, "is often a consequence of lack of investment in training, or lack of basic information and communication technology (ICT) skills among potential recruits."
As a result, foreign recruitment is a frequent option. "In Africa, where average teledensity is less than two telephone lines per 100 inhabitants, with most lines concentrated in urban areas, the lack of technical staff and expertise means that ICT-trained employees may well move to richer countries. Thus the principal employment preoccupation may be how to retain skilled staff and how to attract new ones, rather than a need to cut employment numbers, despite budgetary constraints."
Source: ILO 2002, pp. 73, 84, 89.
In post, as in ports and telecommunications, the impacts of PPI are difficult to separate from those of technology and competition.
A recent ILO review of employment trends in postal services suggests that experience in postal services varies–perhaps more than in other sectors. Among the main factors identified in job losses by the ILO are mergers and acquisitions, globalization, changing markets, new technologies, changing fashions, and structural and regulatory changes.
It is therefore difficult to separate the impact of the technologies from that of privatization and reorganization, but technological and related synergy effects and increased efficiency have influenced the quantity and quality of jobs in the postal service and the structure of the work force (ILO 2002, p. 21).
In Malaysia in 1992 the Postal Services Department was transformed into Pos Malaysia, and nearly all employees chose to transfer to the new corporation rather than remain civil servants. Corporatization was accompanied by network expansion, new business, and services (advertising mail, courier services, printing, and express post, for example), so employment increased by 20 percent from 1992 to 2000.
On the other hand, Tanzania experienced a 45 percent decline in employment from 1994 to 1999 through attrition, voluntary separations, early retirements, and transfers, coinciding with an expansion in franchised operations. Improved productivity, performance, and business allowed a significant expansion (20 percent) of employment numbers in 2000.
In Latin America and the Caribbean employment remained stable or increased in several countries (Barbados, Brazil, Chile, Colombia, Jamaica, Mexico, Peru, and República Bolivariana de Venezuela) between 1995 and 1999, but declined in Argentina, Costa Rica, El Salvador, Panama, and Trinidad and Tobago. In Costa Rica, nearly a quarter of total staff took voluntary retirement in 1998 following the creation of an autonomous state postal firm, but in the following years recruitment to cover new demand and services largely restored employment numbers to their previous levels. In Argentina a program of voluntary departures led the permanent work force to fall by 25 percent from 1996 to 1999.