IMPACT OF PRIVATIZATION

OVER LABOR FORCE

In a Sample of Privatized Firms in Chile

CORFO, the Chilean Economic Development Agency

SOE’s Administration & Privatisation Committee, SEP

Carlos Mladinic, Chairman, SEP, cmladinic@corfo.cl

• There are multiple impacts from privatization upon workers and the labor force, which not necessarily involve a cutdown of workers in privatized firms.

• In Chile, privatization has resulted in greater investment, which has had a positive impact over the country’s labor force.

• In state-owned firms transferred to the private sector, workers are protected by agreements that increase stability, severance protection and direct additional benefits.

THE IMPACT OF PRIVATIZATION UPON LABOR FORCE

BENEFITS FOR WORKERSBENEFITS FOR WORKERSPrivatizations during the during the 90’s90’s

1.- Advanced legal severance payment, plus additional compensation.

2.- Option to purchase shares for up to 10% of the firm at preferential prices.

3.- CORFO’s credit to purchase shares, payable in 18 years, with preferential interest rate.

4.- Personal credit of up to 87% the price of the shares as liquidity support for consumption (preferential rate)

5.- Special severance packages for workers dismissed during the first 24 months after privatization

WORKERS

BENEFITS FOR WORKERSBENEFITS FOR WORKERSPrivatizations during the during the 80’80’ss

1.- Advanced payment of up to 90% of legal benefits; the worker is obliged to earmark 80% to purchase shares.

2.- 30% of the shares available for workers at preferential prices.

3.- The amount due of severance payment is paid when the worker retires.

WORKERS

4.- Preferential rate credit for personal consumption.

COMPAÑÍA de ACERO del PACIFICO COMPAÑÍA de ACERO del PACIFICO C.A.P C.A.P (Iron Mines (Iron Mines & Steel Mill)& Steel Mill)Trend for investments and Labor ForceTrend for investments and Labor Force

CAP Investments and Workers

0204060

1987 1995 2000

US

$ M

illi

on

In

vest

me

nts

0

5,000

10,000

No.

of

Wor

kers

s

Inversiones Trabajadores

Compañía de Telefonos de Chile CTC (Basic Telecom Compañía de Telefonos de Chile CTC (Basic Telecom Company)Company) Trend of investments and labor force Trend of investments and labor force

CTC Investments and Workers

0

100

200

300

400

500

600

1987 1995 2000

US

$ M

illio

n In

vest

men

ts

0

2,000

4,000

6,000

8,000

10,000

No.

of W

orke

rs

Inversiones Trabajadores

Compañía Chilena de Electricidad, CHILECTRA Compañía Chilena de Electricidad, CHILECTRA (Power Utility)(Power Utility)Trend Of Investments And Labor ForceTrend Of Investments And Labor Force

Chilectra Investments and Workers

0

10

20

30

40

50

1987 1995 2000

US

$ M

illi

on

In

vest

me

nts

0 500

1.000 1.500 2.000

2.500 3.000

No.

of W

orker

s

Inversiones Trabajadores

Empresa de Telecomunicaciones de Chile ENTEL (Long Empresa de Telecomunicaciones de Chile ENTEL (Long Distance Telecom Company) Distance Telecom Company) Trend of Investments and Labor ForceTrend of Investments and Labor Force

Entel Investments and Workers

0 20 40 60 80

100 120 140

1987 1995 2000

US

$ M

illi

on

In

vest

me

nts

0

500

1.000

1.500

2.000

No.

of W

orke

rs

Inversiones Trabajadores

LAN LAN Chile Chile (Flag Airline)(Flag Airline) Trend of Investments and Labor Force Trend of Investments and Labor Force

LAN Chile Investments and Workers

0

10

20 30

40

50

60

1987 1995 2000

US

$ M

illi

on

In

ve

stm

en

ts

0 1.000 2.000 3.000 4.000 5.000 6.000 7.000

No.

of W

ork

ers

Inversiones Trabajadores

IMPACT OF PRIVATIZATION UPON LABOR FORCE IN WATER UTILITIES

1999 2000 2001 2002Total Esval workforce 720 529 478 376 Outsourced workforce 325 446 784 833 Public Works workforce 750 650 1.600 3.000

1999 2000 2001 2002Total Aguas Andinas workforce 1.550 1.342 1.174 1.202 Outsourced workforce 150 150 250 300 Public Works workforce 2.100 3.400 3.800 4.000

A comparison: privatizations during the ‘80s and ‘90s: Sales values got by SEP

Privatizations during the 80's

Stake sold Sales ValueCompany's net worth

N° Times Profit

Endesa 60,9% 521,4 856,2 9 Gener 95,1% 88,3 92,8 4 Chilectra 81,6% 117,0 143,4 4 Chilquinta 84,8% 29,1 34,3 5 Iansa 80,6% 48,5 60,2 7 Entel 62,0% 124,5 200,8 4 Soquimich 93,0% 208,7 224,4 4 Cap 59,6% 68,9 115,6 4 Total 1.206,4 1.727,7Privatizations

SEPStake sold Sales Value

Company's net worth

N° Times Profit

Edelaysen 91,0% 43,0 47,3 56 Esval 40,0% 104,9 314,0 22 Emos 42,0% 918,7 1.755,3 37 Essal 51,0% 93,6 183,5 60 Essel 45,0% 122,4 238,8 58 Essbio 51,0% 283,0 586,0 46 Essam - 178,9 178,9 46 Total 1.744,5 3.303,8

OUTSOURCED LABOR FORCEOUTSOURCED LABOR FORCEFIRMS PRIVATIZED IN THE 80’sFIRMS PRIVATIZED IN THE 80’s

Outsourced workers 1987 1995 2000Cap 0 26 44CTC 6.168 38.304 51.549Chilectra 145 1.238 2.283Lan Chile N/I N/I N/IEntel 1.330 5.846 7.698Total Outsourced Workers 7.643 45.414 61.574

IMPACT UPON LABOR FORCEIMPACT UPON LABOR FORCEFIRMS PRIVATIZED IN THE 80’sFIRMS PRIVATIZED IN THE 80’s

Workers/Firms with respect toTotal Work Force

0,0%

0,2%

0,4%

0,6%0,8%

1,0%

1,2%

1,4%

1,6%

1987 1995 2000

Years

Internos Inter + Exter

Own workers

outsourced labor + own workers

Own workers

FIRMS PRIVATIZED IN THE 90’sFIRMS PRIVATIZED IN THE 90’sWATER UTILITIES WATER UTILITIES Trend of Investments in US$ million and workersTrend of Investments in US$ million and workers

1997 1998 1999 2000 2001

Esval Investments 57 67 19 15 57

Esval Workers 736 698 720 529 487

Emos Investments 49 47 37 62 124

Emos Workers 1.836 1.692 1.550 1.342 1.202

Essal Investments 12 8 8 10 32

Essal Workers 311 315 348 244 234

Essel Investments 9 9 7 3 14

Essel Workers 324 324 321 245 73

WATER UTILITIESWATER UTILITIESTREND OF INVESTMENTS AND LABOR FORCETREND OF INVESTMENTS AND LABOR FORCE

Workers and Investments in Water Utilities

0

50

100

150

200

250

1997 1998 1999 2000 2001

Año

US

$ M

illi

on

0

500

1.000

1.500

2.000

2.500

3.000

3.500

No

. o

f W

ork

ers

Total Inversiones Total Trabajadores

Total Investments

• Corporate investments have increased as a result of privatizations in Chile, with a positive impact upon the labor force.

• In the sample of firms privatized during the 80’s, workers (both direct and indirect) increased their share of National Work Force from 0.58% in 1987, to 1.34% in 2000. Direct employment created by the firms of the sample privatized during the 80’s decreased from 0.41% to 0.28%.

• Direct employment in the sample of firms transferred during the 90’s decreased by 32% during the last years. This may reflect previous overstaffing as well as deeper and quicker outsourcing processes. There are no figures available for indirect employment resulting from the externalization of operations or increased investments.

THE IMPACT OF PRIVATIZATION UPON THE IMPACT OF PRIVATIZATION UPON WORKERS AND LABOR FORCEWORKERS AND LABOR FORCEConclusionsConclusions

• Workers must be involved in privatization processes. In Chile, the success of the process is explained by the direct involvement of the workers, as well as by the execution of previous agreements that directly benefited them, for example: Participation in the firm’s shareholding. Privatization’s Success bonuses. Extra compensation in case of discharge, during a specific time

period, protecting the vulnerability of elder or less skilled workers.

Overall, special benefits well above those granted by state-owned firms.

THE IMPACT OF PRIVATIZATION UPON THE IMPACT OF PRIVATIZATION UPON WORKERS AND LABOR FORCE WORKERS AND LABOR FORCE ConclusionsConclusions

THE IMPACT OF PRIVATIZATION UPON THE IMPACT OF PRIVATIZATION UPON WORKERS AND LABOR FORCE WORKERS AND LABOR FORCE ConclusionsConclusions

• Investments made in 2000 in the sample of firms privatized in the 80’s exceed by 450% those made in 1987, prior to their privatization, while in 1995 they had been 660% greater.

• Investment increased from US$ 71 million to US$ 221 million in water utilities privatized in the 90’s, with a positive impact upon the country’s employment.

• Impact on employment does not depend on whether the firms’ shares are controlled by the State or by the private sector, rather on the growth of the industry, and on the ability to investment of such firms.

• For example, telecommunications industry’s sales in 1987 –when the state-owned firms were privatized– amounted to US$ 308, while they reached US$ 2,613 million in 2000. However, this requires investment volumes that the State was unable to afford.