Earnings and Welfare after Retrenchment: Central Bank Employees in Ecuador (*)

We measure the earnings and welfare losses experienced by displaced employees of the Ecuadorian Central Bank (BCE), and link these losses to individual characteristics such as age, gender, education, seniority and wage in the public sector. Data are from a survey of BCE employees we ran fifteen to eighteen months after separation, including subjective evaluations of well-being in addition to information on activity and earnings. We show that welfare losses are not highly correlated with earnings losses, partly because some displaced employees (especially women) withdrew from the labor force after separation. Consequently, the individual determinants of earnings and welfare losses are different. They also differ according to the nature of the separation (voluntary for roughly half of the employees and involuntary for the rest). We estimate that on average the welfare loss of involuntarily displaced employees was 10 percent higher than the compensation they received, while the welfare loss of those who voluntarily left was 20 percent lower. ______________ (*) This paper was written for the research project on “Public Sector Retrenchment and Efficient Compensation Schemes”, supported by the Research Committee of the World Bank through grant 679-51. We are especially grateful to Constanza Calderón, without whom the paper would not have been possible. We are also grateful to Julia González, for her skillful assistance with the field interviews, and to Bruce Fallick and John Newman for helpful comments on an earlier draft. The findings and interpretations in the paper are ours. They should not be attributed to the World Bank.