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Negative Effects of Privatization

By ozgurmadran Mar 29, 2010 1362 Words

The negative effects of privatization on labor have created some challenging problems for the countries that are in the process of privatization. This paper is about the impact of privatization on dismissed workers in Turkey. Dismissed workers have lost some of their earnings after they are reemployed by the new owners of the enterprises. Earnings losses were smaller for the self-employed than for the wage employed. The jobs that once these dismissed workers were doing, became very insufficient, that is, lack of high earnings. Decreasing the earnings of the workers meant that there will be a group of people that will spend their money on the first necessities for their lives. Instead of paying money for extra needs, they will use the money for the most important necessities for their families. Workers feel that what they had lost is the advantage and right of them for making future plans about their lives.


Many countries have launched large-scale privatization programs in the last two decades including Turkey. Although Turkey has started its privatization efforts in 1983, its progress grows slower than many of the economies of Central and Eastern Europe. Main goal of privatization is to put an end to the inefficiencies of the state owned enterprises by freeing the resources of this huge organism to enhance the living standards of the people. But this is not the case, always.

Privatizations have some disadvantages as well as benefits, over the countries that are trying to give up the control of the state economic enterprises. Here, we will deal with the impact of privatization on dismissed workers in Turkey. Dismissed workers suffered significant earnings losses upon re-employment, losses that amounted to an average of 66 percent of their state earnings. Nonetheless, those earnings losses were smaller for self-employed workers (as opposed to the wage employed), for better-educated workers, for younger workers and for cement workers (relative to petrochemical workers). Earnings losses were not significantly influenced by the tenure at state employment, although a longer tenure significantly reduced the probability of employment after dismissal.


The data is collected in the books gathered from friends educating in other universities and using the books in Yeditepe University Library. First, the books are searched from University's site in the internet and in that site there is software, named YORDAM, helps students to access the book catalogs stored in the library. The books are read and important notes are taken. A thesis written on privatization by an MBA student has been read in the library's reservation section. The articles in well known journals and economy newspapers are also consulted.


This paper aims to give a basic understanding of the challenges that dismissed workers encounter. Also a short history of privatization in Turkey is discussed.



The history of State Owned Enterprises (SOEs) in Turkey goes back to the early 1930s; by the early 1980s, however, a move for privatization of those enterprises was under way. Reducing the economic activities of the state was one of the aims of the January 24, 1980 Structural Adjustment and Stabilization Program. Privatization was on the agenda of successive governments and gained momentum in the late 1980s. Although the public employment share in Turkey's total employment is not very high (9.8 percent in the civil service and 3.2 percent in SOEs in 1993) it nonetheless accounts for a large share of wage earners (about 30 percent in 1993) (OECD, 1996).

The state cement industry owned 26 plants scattered around the country. Five of its plants were sold in 1989 to a French concern by block sale. Three of them are included in the present study. The four other plants included in this study were privatized partly by offering shares to public and partly by block sale. The cement plants, particularly those located in the west of the country, were highly profitable. This was partly due to market power. There were marked improvements in labor productivity in some of the plants after privatization, which was attributed to a decline in employment, a policy pursued by the new management.

The state petrochemical industry, Petkim Petrochemicals A.S., owned two plants. A first complex had been established in 1965; the second one was added in 1984. Petkim assumed the status of under consideration for privatization in 1987. In 1990, partial privatization was achieved by selling 8 percent of Petkim's shares. Throughout its history Petkim has been a profitable SOE, possibly due to its monopoly power in the product market. Profitability increased in the 1990s, due to the rehabilitation process undertaken in the industry.

In the cement factories, the new owners conducted the dismissals after the privatization process. This provides an example of a case where labor restructuring was left to new investors who are in a better position to judge their own labor needs. However, in the petrochemicals complex government assumed the responsibility for labor restructuring before privatization. The petrochemicals firm was given the status of under consideration for privatization. This period was used to dismiss workers. Such restructuring prior to privatization was expected to increase the attractiveness and the value of the firm to the prospective buyers.


Among workers with different levels of schooling, general high school graduates experienced the smallest losses, whereas the largest losses were experienced by middle school graduates. Overall, the losses were smaller for the better educated. Workers under 50 years of age also experienced lower losses than older workers. On the other hand, the fall in earnings did not vary much with tenure in the public sector.

The fall in earnings after dismissal may reflect the loss of a good job match or the loss of non-competitive rents associated with state employment. In the case of skilled workers, the fall in earnings could reflect the loss of a good job match. But non-competitive rents cannot be excluded in their case either. In spite of being more educated, these workers could have a low productivity. Their dismissal could actually reflect a decision by firms of getting rid of poorly performing workers.


Monetary earning losses represent only one aspect of the welfare losses; other aspects include welfare losses incurred for lost job security, fringe benefits, health and retirement benefits, and possibly a higher work effort. There may, however, be welfare gains associated with additional leisure when applicable. These other aspects of the changes in welfare touch on subjective evaluations of previous and current levels of welfare. After considering the severance pay received, whether the workers are retired or not, and the characteristics of their new job when they had one, about 92 percent of the cement workers and 85 percent of the Petkim workers' current situation was worse than during their state employment.


Large-scale privatization efforts began to make people jobless or working people are forced to work more to get the same salary from the enterprises. Although privatization is seen as the key to enhance the living standards of the people, it increases the number of unemployed people which is the cause of malfunctions in economic policies.

The effect privatization has on labor is a universal concern. This study evaluates the impact of privatization on dismissed workers in Turkey, and focuses specifically on workers in the cement and petrochemicals sectors. They also show that dismissed workers experienced significant earnings losses upon re-employment, amounting on average to 66 percent of their state earnings. Earnings losses were smaller for the self-employed than for the wage employed; for the better educated, for the younger workers and for the cement workers as compared to Petkim workers. The earnings losses reflect non-competitive rents associated with state employment. Finally, the results of this paper confirm several observations about the Turkish labor market. Not only there is segmentation of the labor market between public and private sectors, but also there is segmentation between formal and informal sectors.


-Tansel, A. (1999), Workers DIsplaced Due to PrIvatIzatIon In Turkey: Before versus After Displacement, 625-647

-Aktan, Coşkun Can (1993), The Prıvatızatıon of State Economıc Enterprıses ın Turkey, 39-52.


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