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Employment and Wage Effects of Privatization: Evidence from Hungary, Romania, Russia, and Ukraine

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Author Info
Brown, J. David () (Heriot-Watt University, Edinburgh)
Earle, John S. () (Upjohn Institute for Employment Research)
Telegdy, Álmos () (Hungarian Academy of Sciences)

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Abstract

We use longitudinal methods and universal panel data on 30,000 initially state-owned manufacturing firms in four transition economies to estimate the impacts of privatization on employment and wages. The results in all four countries consistently reject job losses and they never imply large wage cuts from privatization to either foreign or domestic owners. The domestic privatization estimates are close to zero for employment, while for wages they are negative but small in magnitude; estimated foreign privatization effects are nearly always positive and sometimes large for both outcome variables. We find that the negligible consequences of domestic privatization result from effects on scale, productivity, and costs that are large but offsetting in Hungary and Romania, and from small effects of all types in Russia and Ukraine. The positive employment outcome of foreign ownership results from a substantial scale-expansion effect that dominates the productivity-improvement effect, and the positive wage outcome from productivity improvement dominating the cost-reduction effect.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3688.

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Date of creation: Sep 2008
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Publication status: forthcoming in: Economic Journal
Handle: RePEc:iza:izadps:dp3688

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Related research
Keywords: privatization; employment; wages; foreign ownership; Hungary; Romania; Russia; Ukraine;

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Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Boundaries of Public and Private Enterprise; Privatization; Contracting Out
P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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