Employment generation has been one of the goals of creating or maintaining government -owned enterprises in the past. In fulfilling this role public enterprises often played the role of the model employer see Lakshman (1984). In the current policy atmosphere both domestically and internationally, there is a trend to limit the size of government intervention in the economy. In Pakistan the privatisation of industrial units and the planned divestiture of infrastructural units like Water and Power Development Authority (W APDA), Karachi Electric Supply Corporation (KESe) and Pakistan Telecommunication Corporation (PTe) is changing the mix of public-private domain in economic activity. What would be the impact of labour retrenchment in the former public enterprises? Estimates show that there has been a 42 percent reduction in employment in the recently privatised units [Naqvi (1994»). If the government reduces the public sector workforce and cuts back the liberal remuneration package to public employees, which groups would benefit from such a move? These questions have been analysed in the context of a computable general equilibrium (CGE) model. Section 2 describes the model. This is followed by a brief discussion of the data. Model simulation results are discussed in Section 4 and the conclusions are presented in Section 5. The Appendix contains the equations referred to in the text.