Impacts of privatization on employment: evidence from China

This paper evaluates the impact of privatization on firm employment using a panel dataset of 386 firms in China in the period 1995-2001. Our panel regressions find that employment drops more slowly in privatized firms than in pure state-owned firms by a margin of 17.7 percentage points over the base year of 1995. We also study the dynamic impacts of privatization on employment growth and find that the performance of privatized firms improves over time. Using the difference-in-difference propensity score matching method, we arrive at similar results. To test the robustness of our conclusions, we use alternative definitions of privatization and find that the impacts of privatization on employment are independent of the definition of privatization. These findings are robust even after we control other performance and financial variables as well as the pre-privatization employment history of privatized firms.