Labor redundancy, retraining, and outplacement during privatization : the experience of Brazil's federal railway

PDFResearch PaperRailroadsPrivatizationPublic private partnershipsLayoffsEmployee assistance programsBrazilWorld BankEstache, AntonioSchmitt de Azevedo, Jose AntonioSydentstricker, EvelynNTL-PLANNING AND POLICY-PLANNING AND POLICYNTL-RAIL TRANSPORTATION-Rail Economics and FinanceUS Transportation CollectionAs infrastructure privatization experiences in developing countries progress, there is increasing evidence that their impact on employment is one of their most complex and politically challenging elements. In many cases-although not always- the main approach to cost cutting that is adopted by private operators is indeed labor reduction. Because labor productivity is generally very low in public companies, private operators cannot afford to maintain these levels of employment if they expect to be competitive with potential new entrants into the sector or if they are to deliver on their contractual obligations to provide cheaper and more reliable infrastructure services. The desire to ensure the proper handling of the social needs of the workers is one of the main reasons why the team in charge of the privatization of Brazil's railways made a significant effort to complement the incentive for voluntary reduction with an elaborated menu of training options. This paper provides an overview of this experience in dealing with labor redundancy problems. It discusses in some detail the overall design of the program and highlights the interconnections between its various components. The paper also provides a first assessment of the program's achievements. The paper is organized as follows: Section 2 is an overview of the historical evolution of Brazil's Federal Railways (RFFSA) and of the factors that lead to its privatization; Section 3 discusses the main estimates of the staff retrenchment needs; Section 4 describes the profile of the railway workers; Section 5 explains the overall strategy with which the specific program was build; Section 6 presents the various elements of the program that aim to address its efficiency and social concerns; Section 7 presents the main achievements so far; and Section 8 concludes with some lessons. Tables, 20 p