April 20, 2014
By Neal Tepel
A recent study, “The Decision to Contract Out: Understanding the Full Economic and Social Impacts,” finds that there is often little or no savings when municipalities outsource. Hiring in-house or contracting-in provides a better quality of service and may even be less costly over a long period of time.
The study, by Daphne T. Greenwood of the Colorado Center for Policy Studies at the University of Colorado at Colorado Springs, concludes that contracting out is not only inefficient but it undermines democratic principals by leading to corruption and less control over public funds. Studies consistently show that contracting out typically leads to short-term small savings and often no savings. Outsources is an inefficient method of providing municipal services
“While reducing costs is most often the motive for outsourcing, a growing body of research documents that savings are minimal, on average,” the report says. “It is also not unusual for total costs to be greater when performed by private contracting firms than they were in-house.”
Contractors reduce costs by paying workers minimum wages with little or no benefits. On the other hand, administrative costs are higher in private companies since managers in the private sector usually earn more than in municipal government. In addition those working for a municipality usually live and spend more in local communities. In many instances, contractors pay their workers so little that they must rely on public assistance for housing, food and medical care.“More money usually flows out of the local economy,” the report says.
The public sector has provided a ladder into the middle class for many workers since employment includes opportunities for advancement, job security and generous benefits. On the other hand, private sector companies have spent decades attacking unions, cutting back on health-care benefits and eliminating pensions.