We also discovered that there is no evidence that pre-privatization wages exceeded market levels as a result of income redistribution or of policies to cure failures in the labor market. Our research shows that jobs in state-owned companies were coveted because they required little effort and not because they paid well. After privatization, employers shed excess labor and increased wages of retained employees in exchange for increased worker effort. To estimate the savings due to layoffs, our study looked at the counterfactual questions of how much lower profits would have been if all laid-off workers had been retained at their old wage. As it turns out, the savings are small relative to the layoffs, for two reasons.
Wages tend to be low in Mexico.
Total wages were equal to less than a quarter of sales in the pre-privatization period. The mean savings from layoffs were equal to 6.88 percent of sales in 1993, indicating that savings due to layoffs account for about a third of profitability. Overall, the evidence shows that close to two-thirds of the gains come from the restructuring of the firms and the efficiency gains in production. The growth in output and the reductions in costs are very striking. Most firms, in both the competitive and noncompetitive sectors achieve their higher profits by restructuring their operations and increasing their efficiency.