Privatization and labor policies

Using new data we analyze retrenchment programs before privatization, their effect on prices paid and re-hiring policies pursued by the new private owners. We find evidence in support of skimming and adverse selection. We find that some labor retrenchment policies have a negative impact on net privatization prices, even after taking sample selection bias and endogeneity into account. Some downsizing policies may lead to a higher frequency of post-privatization re-hiring. Skill-biased retrenchment programs are the only ones marginally associated with higher privatization prices and minimal re-hiring rates after privatization. But the political and economic costs of such programs may make them impractical.

Research highlights
► We study retrenchment programs before privatization, their effect on prices paid and re-hiring policies.
► Retrenchment has a negative impact on prices when considering selection bias and endogeneity.
► Downsizing leads to higher re-hiring. Skill-biased retrenchment are linked to higher prices.