Report Highlights Increasing 
Danger of Outsourcing

June 10, 2014

Workers across the country are struggling to make ends meet, and one cause is state and local government outsourcing. Photo used under Creative Commons license from Flickr user Kevin Cortopassi.

Outsourcing has motivated state and local governments to turn to for-profit and private entities to replace important public functions. The result? Middle-class jobs of today are quickly becoming the poverty-level jobs of tomorrow.

Mary Sparrow, a custodial worker in Milwaukee County, Wis., faced the consequences of this phenomenon firsthand when she and 90 of her co-workers were laid off after the county outsourced to MidAmerican Building Services in 2009. At the time she was offered employment that slashed her hourly wages from $15 an hour to $8, without any of her previous benefits. For people like Sparrow who have families to support, it was nothing short of devastating.   

Sparrow struggles to keep her voice steady as she shares not only her own struggles, but those of her friends:

 Some of them are relying on food banks to feed their families. They’ve lost their homes and their cars, the cars they rely on to get them to work.

Unfortunately, circumstances like Sparrow’s are becoming all too common nationwide.

A recently published report, “Race to the Bottom: How Outsourcing Public Services Rewards Corporations and Punishes the Middle Class,” released by advocacy group In the Public Interest examines the consequences of increased outsourcing. The privatization of public functions is causing not only a decline in middle-class wages, but is creating a gap of inequality that is slashing the middle class altogether. 

In the past government jobs have helped elevate families into middle class status through what researchers call “ladders of opportunity,” in which employees in government jobs were able to grow professionally, and receive higher pay and benefits over time.

But the private companies the governments outsource to seem to provide no such opportunities for growth, the report states: “All too often, 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 consequences of this phenomenon far extend the workers it directly affects – the community as a whole will bear the brunt of this burden, according to researchers.

State and local governments say that the outsourcing of labor saves taxpayers money, and provides faster, more efficient specialized services. The report authors found otherwise. Although governments may be cutting costs in wages, these private companies pay employees so little that they have high turnover rates, which result in insufficient training and poor performance reliability that cost taxpayers even more.

“When workers are paid wages with no room for growth, taxpayers will only see them give a basic performance,” Sparrow explains.

And ultimately, the taxpayers split the difference with hidden costs. The study states: “Low wages often mean that the number of Americans on public assistance rolls increases and these supplemental income and healthcare costs, instead of becoming the contractor employer’s responsibility, are merely shifted onto other parts of the government’s budget.”

Outsourcing also has a ripple effect that changes the quality of the working community at large, not just the employees whose positions have been replaced. This, in turn, generates more families living on low-income wages, and perpetuates a cycle of poverty, widening the gap between middle and low-income classes even further.

“This affects all workers, because it changes the standards for wages and benefits,” says Daphne Greenwood, professor of economics at the University of Colorado. Greenwood’s research demonstrates that without adequate wages, families are less likely to spend money on retail, food services, or other establishments in the local economy, resulting in poor economic growth for the entire community.

The big picture, according to the study, is that outsourcing hurts more than it helps.

“Governments are helping to create inequality. It is not happening by itself,” he said.

To read “Race to the Bottom,” click here.