BPE October 18, 2018

What are the impact of privatisation on workforce and employment?

Indeed, with new investments in the privatized enterprises, better resource allocation, operational efficiencies, and better corporate governance are likely to pave the way for expansion and job creation. These improvements in turn will bring about better working conditions, higher pay and more sustainable employment in the long run.

Nonetheless, the impact of privatisation on employment is a widely recognized concern in most countries. When a public enterprise has excess labour, its privatisation designed to raise efficiency is likely to lead to some lay-offs.  At the same time, privatisation stimulates the new owners to inject additional capital and production technologies involving capital-deepening technologies. Normally, the average cost per unit of output declines, as would the wage component and employment, at least in the short-run. However, if the lower average cost leads to lower product price, output expansion is possible, followed by higher demand for labour using even the new technology.