PRIVATIZATION, LIBERALIZATION, WAGES AND EMPLOYMENT - THEORY AND EVIDENCE FOR THE UK

Most agency-based privatization models are of the owner/manager relati on and ignore the labour market. Yet in the 1980s there were profound changes in public sector and privatized firms to wages and employment. We develop a bargaining model of the manager/workforce relation, that explains employment and wages when firms are privatized, government o bjectives become more commercial and markets are liberalised. Using da ta on 14 UK companies, 1972-1988, that were publicly owned in 1972 we find: (a) employment fell following the change to more commercial obje ctives; (b) wages were only slightly affected by this, but fell if the firm lost market power.