Downsizing and Productivity Gains in the Public and Private Sectors of Colombia

We are grateful to James Tybout for access to the data, and to Tilahun Temesgen for excellent research assistance. Correspondence related to the paper should be addressed to [email protected] or [email protected]. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors and do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent. Working papers describe research in progress by the authors and are published to elicit comments and to further debate. Abstract Public sector restructuring, including labor downsizing, has been one of the main areas of policy activism in developing countries and transition economies. But little is known about its actual effects. This paper uses panel data on Colombian enterprises spanning more than one decade to assess the impact on several productivity indicators. The results suggest that the productivity gains from downsizing are larger in state-owned enterprises than in private enterprises. While the increase in value added per worker is similar in both cases, state-owned enterprises experie nce an increase in total value added, and in value added per unit of capital, whereas both indicators decline in private enterprises. The difference, which could simply reflect the larger extent of initial inefficiency in state-owned enterprises, does not appear to depend on the degree of competition in product markets.