The Benefits of Privatization: Evidence from MexicoCriticisms of privatization have centered around the possibility that the observed higher profitability of privatized companies comes at the expense of the rest of society. In this paper we focus on two of the most likely channels for social losses: (1) increased prices as firms capitalize on the market power; and (2) layoffs and lower wages as firms seek to roll back generous labor contracts. Using data for all 218 non-financial privatizations that took place in Mexico between 1983 and 1991 we find that privatized firms quickly bridge the pre-privatization performance gap with industry-matched control groups. For example, privatization is followed by a 24 percentage point increase in the ratio of operating income to sales. We roughly decompose those gains in profitability as follows: 10 percent of the increase is due to higher product prices; 33 percent of the increase represents a transfer from laid-off workers; and productivity gains account for the residual 57 percent. Transfers from society to the firm are partially offset by taxes which absorb slightly over half the gains in operating income. Finally, we also find evidence indicating that deregulation is associated with faster convergence to industry benchmarks. |
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Page 7
... percent . The mean ( median ) change in profitability from the pre - privatization average to 1993 ranges from a low of 24.1 percentage points ( 12.8 ) for operating - income - to - sales to a high of 39.9 percentage points ( 20.5 ) for ...
... percent . The mean ( median ) change in profitability from the pre - privatization average to 1993 ranges from a low of 24.1 percentage points ( 12.8 ) for operating - income - to - sales to a high of 39.9 percentage points ( 20.5 ) for ...
Page 8
... percent ( 4.19 percent ) between t - 4 and t - 1 and a further 62.36 percent ( 64.74 percent ) between t - 1 and 1993 , where t is the year of privatization . " These findings on labor cuts suggest that transfers from workers to ...
... percent ( 4.19 percent ) between t - 4 and t - 1 and a further 62.36 percent ( 64.74 percent ) between t - 1 and 1993 , where t is the year of privatization . " These findings on labor cuts suggest that transfers from workers to ...
Page 10
... percent ( 4.19 percent ) between t - 4 and t - 1 and a further 62.36 percent ( 64.74 percent ) between t - 1 and 1993 , where t is the year of privatization . " These findings on labor cuts suggest that transfers from workers to ...
... percent ( 4.19 percent ) between t - 4 and t - 1 and a further 62.36 percent ( 64.74 percent ) between t - 1 and 1993 , where t is the year of privatization . " These findings on labor cuts suggest that transfers from workers to ...
Common terms and phrases
1993 INEGI Census a-Significant Austan Goolsbee averaging its value behavior Blue Collar Wage Blue Collar Workers changes in profitability competitive and non-competitive competitive sector control group Cost per unit deregulation dummy variable employment fixed assets gains in profitability growth in sales higher profitability income to sales industry-adjusted investment Kathleen McGarry labor layoffs Log Blue Collar Log Employees Log(Sales Luigi Zingales market power mean median Mexico NBER Working Papers net-income-to-sales non-competitive sector number of employees number of firms oligopolistic Oligopoly operating income Operating Income/Sales operating-income-to-sales output Paasche percent percentage points post-privatization 168 post-privatization 170 post-privatization period post-privatization value corresponds pre-privatization 170 pre-privatization period pre-privatization value corresponds precede privatization price index price/quantity controls privatized firms ratio by averaging ratio is taken ratio of operating Real Prices Relative to Global restructuring sample SOEs Table taken from information total number trade barriers transfers from workers White Collar Wage white collar workers Z-stat