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LABOR ISSUES IN PRIVATIZATION AND ENTERPRISE REFORM

LABOR ISSUES IN PRIVATIZATION AND ENTERPRISE REFORM. Sunita Kikeri Private Sector Advisory Services. Labor Issues in Privatization. WHAT ARE THE ISSUES? WHAT ARE THE KEY ELEMENTS OF A LABOR STRATEGY? WHAT ARE THE MAIN LESSONS?. Key Issues….1. Privatization a global phenomenon

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LABOR ISSUES IN PRIVATIZATION AND ENTERPRISE REFORM

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  1. LABOR ISSUES IN PRIVATIZATION ANDENTERPRISE REFORM Sunita Kikeri Private Sector Advisory Services

  2. Labor Issues in Privatization • WHAT ARE THE ISSUES? • WHAT ARE THE KEY ELEMENTS OF A LABOR STRATEGY? • WHAT ARE THE MAIN LESSONS?

  3. Key Issues….1 • Privatization a global phenomenon • Improves operating and financial performance • Macroeconomic impact is positive • Positive welfare consequences • But labor a major concern

  4. Key Issues…..2 • Overstaffing • 30 to 50 percent, sometimes more • Generous pay & benefits • At lower levels in particular • Overtime • Restrictive labor contracts • Labor allocation • Sub-contracting

  5. Key Issues….3 • Fear of layoffs and loss of benefits • Fear of contractual changes • Fear of reduced union influence • Led to union opposition • But: • Little or no change in some cases • New employment • Higher wages • Restructuring with or without privatization

  6. Elements of a Labor Strategy • Labor Market Policies and Regulations • Private job creation, labor mobility • Managing the Process • Consultation and participation • Restructuring • Timing and menu of options • Social Safety Net • Severance, retraining, public works

  7. Consultation & Participation • Early, open, transparent • Communication strategy focused on: • Necessity for reforms and economy-wide benefits • Social safety net measures • Communication strategy for public at large • Involvement of unions in implementation • Employee share ownership schemes

  8. Timing and Sequencing of Labor Restructuring

  9. Labor Restructuring Options

  10. Social Safety Net Options

  11. Example: PhilippinesMWSS, Manila • Excess labor force • 8,000 employees in 1994 • 13 employees/1000 connections • High wages • Rigid employment practices • 42% reduction in employment in 18 months: • Aug. 1996: 7,400 employees • Aug. 1997: 5,057 taken by concessionaires • Jan. 1998: 4,306 regularized

  12. MWSS…..1 • Restructuring in three phases • Phase 1: August to December 1996 • 7,370 employees • Under MWSS management • Discussions with employee association • Study tour to Buenos Aires • Attractive retirement package • 1.5 to 2.5 months for each year of service • Average package: $20,000 • Total cost: $38.5 million (2000 plus employees)

  13. MWSS…..2 • Phase 2: January to August 1997 • 5,340 employees after previous ERP • Between bidding and takeover • Identification of employees for 2 concessions • 5,057 stayed: 6 month probationary contract • 190 left: Same retirement benefits ($3.8 million) • 90 transferred to regulatory body • Employee orientation sessions • Salary and benefits equal to MWSS

  14. MWSS…..3 • Phase 3: August 1997 to January 1998 • 5,057 employees • Probationary period managed by concessionaires • 650 voluntarily separated with same benefits • 100 terminated with same benefits ($2 million) • Livelihood/training seminars, job referral network • 4,306 regularized based on performance appraisal system • Wages same • Efforts to improve morale

  15. Lessons Learned • Address labor issues early in the process • Communicate with stakeholders and public • Develop mix of restructuring options • Establish severance policy • Develop targeted redeployment support • Provide gain-sharing mechanisms • Promote labor market flexibility

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