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Labor Issues in Infrastructure Reform
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The toolkit shows that, with careful planning and stakeholder involvement, labor issues can be adequately addressed during the infrastructure reform process. Guidance on conducting labor reforms is provided, starting with the initial concept design stage to monitoring of the reforms.
 | |  | | 1. Framework and overview |  | | | Framework | Where labor adjustments are required it is important to ensure that labor programs are fully planned for in the PPI reform process. Designing and implementing labor strategies are difficult and sensitive tasks, and the challenges facing governments are many: labor opposition, lack of social safety nets, and lack of functioning labor markets among them. But experience shows that PPI can proceed smoothly if efforts are made early in the process to deal with labor issues. Labor programs are most effective when efforts are made to develop a strategy that balances the interests of consumers in receiving better and more efficient services with measures that provide fair and equitable treatment for workers, develop a mix of restructuring options, compensate surplus employees, help workers reintegrate into the labor market, and inform and involve workers and labor unions in the reform process. | | Overview | Often protected from competition and subsidized by their public sector owners, state-owned infrastructure enterprises frequently employ more people than required for efficiency, pay wages and benefits that are higher than their counterparts in the private sector, and have large, unfunded pension liabilities. These factors have led to lower labor productivity and higher labor costs than private investors could accept. As a result, those affected by PPI often fear that PPI and the associated efficiency improvements will require substantial labor restructuring, both before privatization as governments cut the work force to prepare for reforms and afterward when privatized firms continue to improve productivity. Indeed, PPI-and enterprise reform in general-has often required significant labor adjustments. But workers have also gained in some situations as new investments and dynamic expansion resulted in the creation of new jobs and as productivity improvements led to similar or better terms and conditions of service. | | Defining Objectives | Work force reduction is rarely an objective in and of itself. Rather, the objectives of labor restructuring are better defined in terms that focus on the developmental, economic, and social goals sought from PPI or from enterprise reforms more broadly. In cases where stakeholder opposition is high, it is particularly important to communicate these objectives. If the objectives are not credible, or are vague or poorly articulated, the implementing agency will have more difficulty securing the support and resources needed for labor adjustment. | | Assessing the size and scope of labor restructuring | One of the first steps in developing a labor program is to estimate the extent of labor restructuring that is needed. The implementing agency must get a clear handle on the work force to determine what if any changes are needed in terms of numbers, skills, and work practices. This usually involves carrying out a systematic staffing assessment that enables the implementing agency to: | | Developing strategies and options for labor restructuring | When the size and scope of labor restructuring are known, the next steps are to deal with strategic questions of timing and sequencing and to choose among various restructuring options. Among the key questions that practitioners usually face are: Should labor restructuring be done by governments or be left to private investors? and What is the range of available restructuring options and under what circumstances are the options best used? | | Developing key elements of a labor program | Once the broad strategy and options are determined, the next step is to develop the main elements of the labor program. Specific approaches to labor restructuring are bound to vary from one country and enterprise to the next, depending on local circumstances. But labor programs typically include four main components: severance payments, pension payments, retraining and redeployment support, and employee share ownership plans. | | Managing the restructuring process | Experience shows that labor restructuring |
| | | | | 2. Labor impacts of private participation in infrastructure | | | | Overall trends | PPI takes place in a changing global context that affects all businesses and national economies. There is, however, widespread concern regarding its impact on workers. | | Employment impact | Job losses are the most obvious adverse impact on labor. This section focuses on the impact of PPI on the number of workers employed, beginning with a brief introduction and then examining the evidence sector-by-sector. | | Labor productivity | PPI has enabled many governments to overcome long-standing problems of low labor productivity in public services. This has been done not only (and not even always) through reducing the work force but also through capital investment and service expansion. | | Pay | As with employment numbers, the impact of PPI on pay can be seen as an outcome of underlying and historical factors rather than of PPI as such. Privatization and other forms of PPI have tended to expose pay determination more to market forces, but this has been offset to varying degrees by legal provisions, collective agreements, and labor union strength. Therefore, the impact of PPI on earnings has varied in accordance with the net influence of these various factors. | | Benefits | Public employees often enjoy a range of nonwage benefits that tend to be both greater in quantity and different from those that are more typical of the private sector. As mentioned in the pay section, PPI tends to lead to monetization of nonwage benefits as they are bought out. In addition, pension arrangements and other social provisions tend to change with PPI, and new benefits, such as employee shares, are sometimes introduced. | | Work practices | The various forms of PPI tend to result in changes to working conditions and practices. The way this is done and the extent to which workers are involved in shaping new arrangements vary among employers, just as they do in the private sector more generally. | | Summary | Evidence shows a diversity of labor effects resulting from PPI. Nonetheless some key trends and factors affecting outcomes in particular situations can be abstracted from the available information. The main comments that can be made are these: | | Material and sources | Additional Material |
| | | | | 3. Assessing the size and scope of labor restructuring | | | | Overview | This section outlines the rationale for a systematic assessment of the work force and introduces the key questions that the implementing agency must address. | | Staff audits | Staff audits give an up-to-date analysis of the work force and provide the basis for subsequent benchmarking and work force analyses. They also provide the necessary database for accurate estimation of the costs of alternative severance and pensions strategies, and for the eventual disbursement of payments to workers. | | Benchmarking | Benchmarking is an important mechanism for identifying the potential for labor productivity improvements. Making good comparisons can be difficult, but there are several sources of information. In addition the process of benchmarking will help identify problem areas in terms of overstaffing and opportunities for improving labor productivity. | | Work force analysis | Work force analyses build on staff audits to analyze and forecast the structure of the work force and then match that structure to the requirements of the infrastructure enterprise. | | Who should do the assessments? | Who should undertake the tasks of staff auditing, benchmarking, and work force analysis? This section considers the implementing agency's options in undertaking those tasks. | | Material and sources | Tools |
| | | | | 4. Strategies and Options | | | | Restructuring - who should do it? | The primary strategic decision is whether the government or the private sector should undertake labor restructuring. There is no one right approach and countries have followed different strategies, depending on the timetable and urgency of the private participation in infrastructure (PPI) as well as on the nature of labor issues at the enterprise level. There are three options: - Leaving labor restructuring to the private sector-that is, following PPI
- Leaving labor restructuring to the government-that is, before PPI
- Taking a mixed approach.
| | Menu of options | This section presents a typology of labor adjustment (or work force structuring) options. There are many ways to restructure the work force. This section first reviews the different options and then outlines how they might be used in combination as part of a comprehensive labor program. | | Sequencing of options | In planning a labor program, the implementing agency needs to take into account the sequencing of different options, and the right timing and sequencing can be critical to achieving a successful outcome. | | Soft options | Soft options aim to restructure the labor force through the reinforcement of current work regulations. Options include payroll management, enforcement of retirement age, enforcement of disciplinary actions, staff transfers, and freezes on recruitment and promotions. These options can be a starting point to address overstaffing and can lead to substantial labor force reductions, without creating social or political controversy or unrest. | | Workplace restructuring | Changes in the nature and structure of work are also useful tools for the implementing agency. They can enable control or reduction of staff costs while maintaining the work force largely intact until such time as the new PPI investor can select the staff needed. | | Retirement and redundancy | If soft options or workplace restructuring options are not enough, voluntary departures, compulsory redundancy, or both may be needed. Given high levels of overstaffing, most PPI schemes will need to turn to these options. | | Key considerations in developing strategies and options | The PPI implementing agency usually does not have a completely free hand when developing options and strategies for a labor program. Labor laws and the legal status of the enterprise and its employees prior to PPI often restrict the choices that are feasible, while political considerations can strongly influence decisions on employment protection for workers in the PPI bidding process. | | Strategies - a decision tree | Figure 4.3 provides a decision tree to help implementing agencies develop the overall strategy for labor restructuring and assess when and how labor restructuring should take place, taking into account circumstances at both the country and enterprise levels. | | Material and sources | Tools |
| | | | 5. Key elements of a labor program | | | | Severance | Severance payments are an important source of temporary income for surplus workers and they need to be designed and put in place early in the restructuring process. Because they are potentially costly for governments, it is important to design them well. This section of the module provides guidance on how to design severance plans, how to assess payment levels, and how to avoid some common implementation problems. | | Pensions and PPI | This section identifies the key pension challenges facing the implementing agency and provides a brief introduction to pension plans for implementing agencies that may lack pension expertise. | | Redeployment support | Redeployment support aims to help displaced workers reenter the job market or become self-employed. Redeployment programs are politically and socially valuable, providing a tangible demonstration of government's commitment to helping workers. But program design and implementation has to be considered carefully to ensure the cost effectiveness and efficiency of such programs. | | Employee share ownership | Employee share ownership can be used as part of the PPI program, as an element of compensation, as an inducement to remain with the operation post-PPI, or as part of an employee buyout. This section outlines those potential roles. |
| | | | | 6. Engaging with stakeholders | | | | Fundamentals of engagement | Many stakeholders will be involved during the course of a PPI transaction. Government is itself a vital stakeholder, as well as the principal decision-maker at key approval steps in the PPI process and the labor program. Investors, consumers, and regulatory authorities are stakeholders, too. The wider processes of public policymaking and strategic communication for privatization and PPI are described in material provided in the accompanying CD-ROM. | | Communication | The most basic issue for implementing agencies in managing the process of labor adjustment in PPI is to communicate effectively with all stakeholders. | | Consultation | An effective way to communicate is to consult, but that is not the only reason for consultation. Consultation can also help improve the process and outcomes of work force restructuring. | | Negotiation | Negotiating changes in work force numbers or conditions of service lies at the heart of the challenge facing the implementing agency. This section provides a framework for negotiations, and some examples-good and bad-from different environments. | | Cooperation | Where circumstances are favorable, effective communication strategies, consultation exercises, and negotiation processes can lead to deeper forms of engagement in which stakeholders actively participate in the design and implementation of PPI and labor adjustment programs. | | Material and sources | Tools |
| | | | | 7. Annexes | | | | Overview | This module provides guidance on why and how to evaluate the costs and benefits of labor restructuring programs and how to set up effective monitoring systems to track progress and learn from experience. | | Assessing financial returns | Governments, like the private sector, need to assess the financial costs and benefits of a work force restructuring program. Unlike the private sector, however, governments also need to assess a program's economic costs and benefits to society, or the economy, as a whole. The key questions and potential tools of analysis are summarized in table 7.1. | | Assessing economic returns | This section outlines the rationale for, and elements of, economic analysis of labor programs. The resources listed at the end of this module include several examples of economic analyses of work force restructuring in public enterprises. | | Evaluating labor market programs | Evaluation is the periodic assessment of the relevance, performance, efficiency, and impact of the project in relation to stated goals. It differs from monitoring in that it is not an essential task for the implementing agency. Evaluation is mainly concerned with impact, which may only be measurable toward the end of implementation or in later years and so is often better done by a separate agency independent from implementation. | | Monitoring of labor programs | Monitoring of the labor program is a management task, but one that is often overlooked and neglected. Monitoring differs from evaluation in that it is principally a management function, which typically involves both review of performance against target performance indicators and foreward-looking forecasts (see box 7.6). Effective monitoring of the labor program is integral to good management by the implementing agency. It provides the agency continuous feedback on implementation and identifies both successes and problems as early as possible to facilitate timely adjustments to project operation. | | Material and sources | Tools |
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