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The Impact of Privatization on the Earnings of Restructured Workers: Evidence From the Oil Industry


We study the long-term impact of job displacement from a big state owned enterprise as a result of its privatization in a developing country. Our results suggest large reductions in earnings, which persist throughout the years. However, we also find that the displaced worker’s post-displacement earnings are in line with competitive market wages, and unrelated to sector of employment or to tenure losses, indicating that the long-term reduction in earnings as a result of displacement because of privatization can be traced to the loss of wage rents. Our results indicate that job displacement in SOEs may have very large redistributive implications for the workers involved but that this loss does not necessarily reflect the loss of specific human capital associated to these jobs.

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  1. See also Hamermesh (1987) for a good survey of previous studies for the US.

  2. See particularly, Harvard Business School (1998a, b). See also Gadano and Sturzengger (1998).

  3. It is precisely because we do not know these CEFs that we need a control group.

  4. YPF S.A. hired the Novum Milenium Foundation, a not-for-profit research organization specialized in designing and conducting business surveys, to collect the data from the displaced workers.

  5. These regions are the greater city of Buenos Aires, La Plata, Mendoza, Salta, Neuquen and Comodoro Rivadavia.

  6. Labor income was collected to be comparable between the displaced workers’ survey and the household survey (used to construct the counterfactual scenarios).

  7. Couch (2001) uses sample sizes going from 209 up to 272.

  8. The household survey is not conducted in Comodoro Rivadavia. Thus, the control group for displaced workers from this region is estimated using data from Neuquen, which is the closest urban agglomerate for which we do have data.

  9. For a brief description of the Household Survey see Galiani and Hopenhayn (2003).

  10. Only 12 women with valid information are not included in the main analysis. We also exclude a few family workers from the analysis.

  11. These results are not reported in the Table.

  12. Again, parametric estimates are very similar (21.9% and 43.4%) to the mean nonparametric estimates.

  13. We estimate the potential monthly income from interest as 0.005 times the severance payment, implying an annual rate of return of 6.17%. This is close to the average yield of the 5-year US Treasury Bonds over the period 1991–2001.

  14. One concern is that YPF displaced workers were just having transitory high earnings before displacement in 1991 and that this accounts for part of the result. However, the evidence available indicates that up to the reform process the unions had commanded a strong and unchallenged bargaining power in wage settlements. This suggests that there is no reason to believe 1991 wages were not consistent with historical wages. Other concern would be that wage inequality might have decreased during the period, relatively harming the higher than average wages of YPF workers, but precisely the opposite occurred.


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We are grateful to Repsol YPF, Carlos Gervasoni, German Sturzenegger and Luciana Esquerro for cooperation throughout this study. We also thank Maria Eugenia Garibotti for excellent research assistance, and Fernando Alvarez, Kevin Cowan, Juan Pablo Montero, Ernesto Schargrodsky and seminar participants at the LACEA meeting in Paris and Repsol YPF-Harvard Kennedy School Fellows seminar for helpful comments.

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Correspondence to Federico Sturzenegger.

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Galiani, S., Sturzenegger, F. The Impact of Privatization on the Earnings of Restructured Workers: Evidence From the Oil Industry. J Labor Res 29, 162–176 (2008).

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  • Privatization
  • Structural reform
  • Displaced workers and earning losses

JEL Classification

  • J63
  • J65
  • O12
  • O15