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The Impact of Privatization of State-Owned Enterprises on Workers

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  • David Arnold

    (Princeton University)

Abstract

I study the impact of privatization of state-owned enterprises (SOEs) on workers at privatized SOEs and on the aggregate labor market. Using a matched employer-employee dataset, I find privatization in Brazil between 1996-2000 lowered incumbent workers’ wages by a substantial 30 log points relative to a matched control group. Half of this decline is due to privatized workers facing an increased risk of displacement and moving to lower-paying establishments, while half is due to within-establishment wage changes. The direct impacts understate the total cost of privatization to workers in the presence of general equilibrium spillovers. To estimate spillovers on private-sector labor markets, I construct an exposure to privatization measure that depends on the transition probability between jobs in a given labor market and jobs in privatized SOEs. I find wages decline in labor markets that are more exposed to privatization relative to those that are less exposed. A summary calculation suggests that privatization decreased the aggregate wage in the formal sector of the Brazilian labor market by 4.5 log points, with about one-quarter of this effect attributable to the direct effect on privatized workers and three-quarters attributable to spillovers.

Suggested Citation

  • David Arnold, 2019. "The Impact of Privatization of State-Owned Enterprises on Workers," Working Papers 625, Princeton University, Department of Economics, Industrial Relations Section..
    • Handle: RePEc:pri:indrel:625
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    More about this item

    Keywords

    privatization; spillovers; labor markets; state-owned enterprises (SOEs);
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets

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