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Workers' severance packages in privatization of state-owned enterprises in Bangladesh, Pakistan and Sri Lanka : options for the future (Inglês)

The most common compensation scheme used to retrench labor in the context of privatization of state-owned enterprises (SOEs) is the voluntary departures scheme with compensation based on workers number of years of service (tenure) and wage. However, both theory and practical experience suggest that this tenure-cum-wage based severance package leads to over-payment and adverse selection, with a possible adverse impact on the SOE's market value. The literature suggests that adverse selection and over-payment problems should be tackled through targeting, i.e., adequately indexing severance payments to workers individual characteristics. However appealing targeting is from the theoretical perspective, satisfactory targeting is difficult because of the information requirements, lack of adequate institutional capacity and for political economy reasons. Therefore, considering the strong presence of labor unions in Bangladesh, Pakistan, and Sri Lanka, and the popularity of tenure-cum-wage based severance packages with the unions, it is proposed here three options for future severance packages with realistic and practical surrogate targeting methods. The first option advocates balancing the existing tenure-cum-wage based system with compensation for years of denied service -- thus reducing over-payment and fiscal cost; the second option simply deprives the indispensable workers from the option of leaving the firm -- thus reducing adverse selection; and the third option advocates payment according to workers observed outside job opportunities -- also allowing reduction of over-payment and fiscal cost. These options are not mutually exclusive; combinations thereof can be used to pursue the dual goals of reducing over-payment and adverse selection. The revolving door effect is yet another problem that plagues retrenchment schemes. It is suggested that the most effective way of dealing with the revolving door effect is for a government to enact a law banning rehiring of retrenched workers in the public service, and ensure that such a law is adequately enforced.


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    Kouame,Auguste Tano

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    Sri Lanka,

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    Sul da Ásia,

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    Workers' severance packages in privatization of state-owned enterprises in Bangladesh, Pakistan and Sri Lanka : options for the future

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    severance package;economic and sector work;years of service;public sector job;Labor Union;voluntary departure scheme;privatization of state;severance payment;labor market policy;private sector job;development finance institution;private sector employment;attitudes towards privatization;labor market condition;source capital;thermal power plant;power of workers;mass privatization program;human capital stock;support privatization;number of shares;benefit to society;civil service status;private commercial bank;labor force participant;regional trading arrangements;large public enterprise;public sector employment;private training center;per capita income;annual development program;opposition to privatization;private sector operation;foreign direct investment;private sector worker;political economy factor;payment of compensation;public sector counterpart;security of employment;normal retirement age;job search assistance;moral hazard problem;state owned enterprise;capital development fund;social security system;adverse selection;job opportunity;job opportunities;retrenchment scheme;privatization proceeds;retrenched worker;industrial units;opportunity cost;employment guarantee;labor retrenchment;labor shedding;voluntary separation;private owner;start-up capital;fiscal cost;conceptual issue;private investor;voluntary severance;private ownership;voluntary retirement;individual characteristic;sale price;productive worker;mandatory retirement;social responsibility;job protection;voluntary scheme;prospective investor;cash payment;average wage;retrenchment package;installment payment;flow diagram;job loss;adverse shock;redundant worker;skill mix;retrenchment program;employment protection;Wage Subsidies;discount price;potential investor;public expenditure;privatization process;skill requirement;average age;auction system;wage subsidy;Wage Bill;weighted average;unemployment benefit;increasing function;lump sum;unemployment insurance;employment term;humane ways;total compensation;employment creation;Young Workers;management experience;residential housing;short period;ceteris paribus;total employment;formal employment;retired worker;sum equivalent;monthly wage;compulsory retirement;fiscal standpoint;average cost;enterprise restructuring;Social Protection;private supplier;entrepreneurial skill;average pay;labor redundancy;anecdotal evidence;surplus worker;foreign borrowing;government worker;industrial relation;payment arrears;worker control;privatization commission;capital assistance;scale industrial;budgetary cost;involuntary separation;salary payment;business environment;salary levels;positive correlation;national institute;good information;job market;prospective buyer;high concentration;financial resource;macroeconomic environment;risk averse;paper worker;labor size;job placement;payment modality;political crisis;placement service;mass layoff;borrowed fund;political patronage;benefit analysis;employee benefit;loan insurance;private consumption;political parties;pension right;government pay;efficiency gain;train service;separation package;budgetary constraint;provident fund;ethical issue;managerial skill;capital injection;financial cost;public acceptance;financial source;employment reduction;ambitious privatization;political party;capital loss;driven training;debt retirement;government use;workers benefit;civil pension;domestic bank;pension benefit;social infrastructure;permanent employment;temporary worker;employment training;public corporation;poverty alleviation;rural area;forced labor;compensation scheme;capital budget;alternative employment;government support;scarce resource;inflationary pressure;information requirement;labor issue;political constraint;equity share;popular participation;power station;legal entitlement;Industrial Policies;common feature;textile mill;competitive environment;perfect information;Public Utilities;competitive bidder;Industrial Policy;government's budget;laid-off worker;fringe benefit;regulatory environment



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