Businesses of the State in Brazil : The Impact on Employment and Business Dynamism

Businesses of the state (BOS) have regained the public debate in midst of the COVID-19 pandemic, especially as a source of resilience to shocks and a mechanism for technology development and diffusion. However, little is known about the impacts on the economy. This paper uses a novel dataset that allows exploring the importance of BOS in Brazil, including registered state-owned or mixed enterprises and with indirect state participation in competitive sectors. The paper looks at their impact through two connected perspectives: employment and business dynamism. First, the analysis tests whether BOS pay a wage premium to their employees. Then, it estimates the impacts of privatization on workers’ outcomes and firms’ total employment. The findings indicate that BOS firms pay a substantial wage premium in Brazil and that privatization events lead to a significant decline in workers’ wages. Yet, the analysis does not find robust evidence that privatization results in a decline in total employment. The findings show that BOS tend to use more technical workers, a proxy for innovation, and are larger and grow faster in terms of employment than private companies. Finally, the paper analyzes what the presence of BOS means for the business dynamism of sectors. It finds that a higher presence of BOS in a given sector is negatively correlated with young firms’ participation and exit rates, and job destruction rates. Meanwhile, BOS participation is positively correlated with market concentration, but also job creation rates. The results suggest that BOS have significant impacts on markets, and that assessment of the state’s footprint needs to consider the effects of public investments in private companies, directly and indirectly.