Partial privatization and yardstick competition

We analyse the dynamics of public and private sector employment in Bangladesh, using the natural experiment provided by the partial privatization of the jute industry. The public sector had substantial excess employment of workers initially, but this excess was substantially eroded by the end of the period we studied. The extent of erosion differs between white-collar and manual worker categories, with excess employment persisting only in the former. Our findings suggest that partial privatization increases the efficacy of yardstick competition in the regulation of public firms, because heterogeneous ownership undermines collusion between public sector managers, and also makes excess employment more transparent to the general public.