GEP Research Paper 09/11
Full and Partial Privatization in China: The Labor Consequences
Kevin Amess, Jun Du and Sourafel Girma
Summary
Partial privatization creates a ‘win-win’ scenario. Market discipline and incentives are driving labor productivity improvements whilst a government “helping hand” simultaneously protects labor welfare via job creation and higher wages.
Abstract
This paper is the first paper to present findings evaluating the consequences for employees of full and partial privatization using difference-in-differences combined with propensity score matching. We find: (1) partial privatization causes job creation in contrast to full privatization, which destroys jobs, (2) full privatization causes higher labor productivity improvement than partial privatization, (3) wage increases occur only in partially privatized firms and (4) there are small increases in labor quality investment in both cases. The results suggest partial privatization exploits market discipline to induce labor productivity whilst simultaneously providing welfare improvements for labor. This is the ‘win-win’ outcome predicted by the ‘helping hand’ theory of government. Our results suggest that governments are likely to gain wider support for a program of partial privatization rather than full privatization.
Issued in June 2009
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