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New Report Challenges Outsourcing Myths

March 26, 2014

Government workers and their allies have protested privatization schemes which often diminish quality in public services and military readiness without reducing costs.

It’s one of the inevitable laugh lines in tens of thousands of workplaces, public and private. A senior manager tells workers that some of their duties will be outsourced to cut costs. Around the water cooler employees snicker about how contracting out work often backfires, costing employers more than they save.

A new report, “The Decision to Contract Out: Understanding the Full Economic and Social Impacts,” provides a wealth of evidence that the folks around the water cooler know what they are talking about.

The report’s author, Daphne T. Greenwood, from the University of Colorado’s economics department, describes how outsourcing public jobs often diminishes quality in public services without substantial cost savings.

A review of the report by Jobs With Justice says Greenwood describes how “broader social and economic effects are often forgotten when considering the cost effectiveness of a contract. Since local and state governments are major employers in many communities, their decisions about how to deliver services are important to economic development.”

Among the negative consequences of outsourcing outlined in the report are: reduced accountability and transparency in government services, fewer whistleblower protections, frequent conflicts of interest and nepotism, frequent problems with quality of service delivery and reduced worker wages and benefits, which leads to reduced spending and declining tax bases.

Greenwood says it’s time for cities and states to be required to pursue a broad analysis of contracting out before outsourcing much as they are forced to present environmental impact studies before making major financial decisions.

The report includes a guide for calculating the social and economic consequences of outsourcing to a state or community as well as examples of statutes that address the problem.