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Outsourcing public jobs results in a race to the bottom

A new report from In the Public Interest looks at what happens to communities, and to the quality of life of the workers who provide important public services, when those services are outsourced to for-profit and other private entities.

The answer, drawn from a growing body of evidence and industry data: "a downward spiral in which reduced worker wages and benefits can hurt the local economy and overall stability of middle and working class communities," says the report, "Race to the Bottom: How Outsourcing Public Services Rewards Corporations and Punishes the Middle Class."

ITPI Report Graphic

Historically, the authors note, state and local governments created ladders of opportunity that helped workers reach the middle class through public sector jobs that provided good wages and important benefits, such as health insurance and sick leave. This was especially true for women and African-Americans.

"Low-road government contracts reverse this dynamic," the report says. "While corporations rake in increasing profits through taxpayer dollars, and CEO compensation continues to soar, numerous examples in this report show that workers employed by state and local government contractors receive low wages and few benefits."

Among the examples:

  • A 2009 study on the effects of outsourcing on food service workers in K-12 public schools in New Jersey found that companies such as Aramark, Sodexo and Compass cut workers' wages by $4 to $6 per hour following privatization. Many workers completely lost their health insurance benefits. In fact, food service contractors have the highest level of employees and their children enrolled in New Jersey FamilyCare, the state's Medicaid program.
     
  • When nursing assistant positions at a Michigan state-run home that serves veterans were outsourced in 2011, the contractor significantly lowered wages and benefits. Nursing assistants working for the contractor were paid a starting wage of $8.50 per hour with no health and pension benefits. State nursing assistants who worked directly for the public home earned between $15 and $20 per hour with health and pension benefits. Among the contracted nursing assistants, the low compensation levels resulted in higher turnover and, ultimately, lower levels of reliability and quality of care.
     
  • Among correctional officers, industry wage data show that in 2008, the median annual wage for officers employed by state governments was $38,850, and it was $37,510 for those employed by local governments. Correctional officers employed by private prison companies, by contrast, earned a median yearly salary of only $28,790. The same trend exists in the waste industry. Trash collection workers employed by municipalities can earn an annual wage of $51,214, while private sector trash collection workers earn on average between $28,000 and $32,000.

"All too often," the report says, "taxpayers are inadvertently contributing to growing income inequality and the erosion of the middle class by turning middle class jobs into poverty-level jobs."

The report outlines a set of policy recommendations for reversing this dangerous race to the bottom, including:

  • Requiring contractors to show that cost savings derive from increased efficiencies and innovation, not from a decrease in compensation;
     
  • Requiring contractors to pay a living wage and provide health and other important benefits;
     
  • Requiring transparency measures, such as tracking how much state and local governments are spending on private contracts, how many workers are employed by those contracts and worker wage rates; and
     
  • Requiring governments to conduct a social and economic impact analysis before outsourcing.

"By implementing these policies, state and local governments can rebuild those ladders to the middle class that have eroded over the years," the authors conclude. "Instead of engaging in a race to the bottom, cities and states can ensure that taxpayer dollars used to pay people to perform public work result in solid family-supporting jobs." [Dan Gursky, In the Public Interest]

June 3, 2014