As with employment numbers, the impact of PPI on pay can be seen as an outcome of underlying and historical factors rather than of PPI as such. Privatization and other forms of PPI have tended to expose pay determination more to market forces, but this has been offset to varying degrees by legal provisions, collective agreements, and labor union strength. Therefore, the impact of PPI on earnings has varied in accordance with the net influence of these various factors.
In some sectors and grades publicly employed workers have received higher compensation than equivalent workers in the private sector. In these cases competitive pressures will encourage the agencies implementing labor programs to reduce costs and bring compensation more into line with market conditions. Equally, where public employees have been paid too little to enable recruitment and retention of some grades of skilled workers, market forces will push pay upwards.
Labor unions are able to take advantage of tight market conditions to negotiate pay and benefit increases for the workers whose skills are in short supply. They also may seek to extend the same improvements to unskilled workers or others in less demand.
In addition to the general tendency for PPI employers to relate pay more to market conditions, there are four other trends that can result from PPI across a range of sectors and countries:
Changes in pay and compensation depend not only on private sector initiatives but also on labor laws and contracts.
In practice, the impact of these market trends can be constrained by rigidities in the pay revision process. These rigidities may be set out in labor laws, collective bargaining agreements, or labor contracts, some of which may predate the PPI transaction by many years.
In the utility and infrastructure companies of the former East African Community (EAC), for example, pay and benefits were very different between workers originally employed by the EAC and later recruits. These differentials have persisted in the years following the dissolution of the EAC, but more recent PPI reforms are now allowing the opportunity to revisit and harmonize pay systems so that they are more equitable. In some Mexican ports, longshoremen who had previously been paid by the ton of cargo handled were paid by the day after privatization. In the electricity privatization process in Pakistan, an agreement with the All Pakistan State Enterprises Workers' Action Committee in 1991 provided for a 35 percent increase in basic pay and for allowances to be paid at the new rate.
In some cases PPI has produced "two-tier" work forces in which the pay (and other conditions) of retained workers is protected to some degree and new employees are recruited on different terms. An example is Cote d'Ivoire rail, where new recruits have lower basic wages than those retained from before PPI, but they also have bonuses mostly related to performance. Average pay in Cote d'Ivoire rail has increased following PPI, but so have differentials; therefore, the effect on different grades varies greatly.
In some cases, as employment has expanded in the longer term the success of PPI has made pay increases above the rate of inflation affordable. For example:
Workers' pay has improved following private participation in a number of cases.
