The Impact of Privatization of State-Owned Enterprises on Workers

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.