An Analysis of Compensation Programs for Redundant Workers in Egyptian Public Enterprise

Abstract Because the Egyptian labor code contains stringent job security provisions, the focus of this paper is on voluntary severance programs. An efficient voluntary program would achieve its exit target by matching compensation payments to the individual-specific losses that workers incur by leaving the public sector. After a brief review of the institutional and legal setting, the paper is divided into two parts. The first estimates the individual-specific losses as the difference between their lifetime compensation in the public sector and the opportunity cost of their labor in the private sector. The value of the non-wage aspects of public sector jobs is estimated indirectly by exploiting information on queuing for public sector jobs. The second part of the paper uses these individual-specific estimates of worker losses to conduct simulations of voluntary severance schemes where compensation is indexed on various observable worker characteristics like tenure, years of denied service and wage. The results of the simulation include the average cost per worker under each scheme and the composition of exiting and remaining workers along various observable characteristics.