Cross-Country Evidence on Public Sector Retrenchment

This paper reports the results from a survey of public sector employment retrenchment episodes across a wide variety of developing and transition economies. The information collected and analyzed are from a myriad of sources but primarily from internal World Bank documents and in-depth interviews with World Bank staff with operational information about experiences in specific countries. Using the information collected on 41 retrenchment programs across 37 countries, we analyze the relationships between the factors leading to retrenchment, the scope and nature of retrenchment, and the methods used to accomplish the retrenchment. The latter includes an analysis of the mix of involuntary and voluntary employment reduction programs, the compensation schemes offered, and the extent of targeting specific types of workers. Although relevant quantitative information is limited, we also attempt to evaluate the outcome of the programs on a variety of dimensions. The most striking findings relate to the analysis of the factors that led a significant fraction of programs to exhibit the rehiring of the separated workers by the public sector (thereby defeating the program objective). In addition, we relate program characteristics to calculated summary financial payback indicators and to the nature of the labor market adjustment.