PRIVATIZATION, LABOR AND SOCIAL SAFETY NETS Sanjeev Gupta Christian Schiller Henry Ma Erwin R. Tiongson International Monetary Fund, Washington Abstract. Privatization promotes economic efficiency and growth, thereby reinforcing macroeconomic adjustment. In the short run, however, it can lead to job losses and wage cuts for workers. This paper discusses these adverse impactsofprivatizationintermsofvariousmethodsofprivatizationandsurveys the existing empirical evidence. It finds that public sales and auctions can have stronger negative effects on workers but maximize the government's revenue. Policymakers' options for mitigating the social impact of privatization are surveyed. Keywords. Privatization; Social safety nets; Social welfare; State-owned enterprises; Transition 1. Introduction State enterprises, especially in developing countries, tend to be overstaffed, pay excessive wages, and have low productivity Kikeri, 1998). Consequently, these enterprisesareoftenadrainonthebudgetandadragoneconomicgrowth.Avast literatureonprivatizationhasemergedovertheyearsindicatingthatprivatization promotes greater allocative and productive efficiency, reduces distortions resulting from excessive subsidies and taxation, and improves the public sector's financial health through lower deficits and lower debt. Sheshinski and LoÂpez- Calva1999)andHavrylyshynandMcGettigan1999)surveytherecentliterature on such gains from privatization. 1 However, privatization can have an adverse social impact, at least in the short run.Forinstance,itcanbeassociatedwithjoblossesandwagecutsforworkers. Multisectoral country studies indicate significant reduction in employment in a number of countries. 2 Social safety nets can help mitigate the short-term adverse effects. Safety nets have taken many forms, including the provision of severance payments and temporary employment to job losers, and the adapting of existing social security arrangements. 3 0950-0804/01/05 0647±24 JOURNAL OF ECONOMIC SURVEYS Vol. 15, No. 5 # BlackwellPublishersLtd.2001,108CowleyRd.,OxfordOX41JF,UKand350MainSt.,Malden, MA 02148, USA.