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It is widely known that workers wages have been stagnant for decades thus leading to the vast income inequality we are seeing today throughout our great nation. Many workers have seen little if any pay raise for years, and they are the lucky ones. Workers have seen their wages slashed as their jobs are being contracted out, or outsourced, to low bid government contractors.
Government offices at the federal level all the way down to the local school board are fueling this race to the bottom. This week, In The Public Interest published a biting report about how outsourcing jobs is hurting our communities.
The battle to cut the budget has produced some previously unforeseen and disastrous circumstances. Budgets writers in the past few decades looked to government contractors as way to reduce their budgets, when in reality they are merely shifting costs from one line of the budget to another.
“By slashing labor costs, a company may be able to show a city or state cost savings on paper,” the ITPI report states. “However, low wages often mean that the number of Americans on public assistance rolls increases and these supplemental income and healthcare costs, instead of being the contracting employer’s responsibility, are merely shifted onto other parts of the government budget.”
To budget writers this seems like a golden opportunity, cut labor costs and absolve themselves of the responsibility to provide healthcare or any retirement program. This is troubling as we have seen more and more employers making reductions to retirement plans, failing to offer any paid time off, and declining number of employers to even offer healthcare to workers. 99% of all government workers are offered healthcare and retirement options.
The percent of workers offered healthcare (from the Bureau of Labor Statistics):
- 57% of Full-Time workers in companies with less than 100 employees
- 85% of Full-Time workers in companies with more than 100 employees
- 24% of Part-Time workers
The percent of workers who are offered retirement options:
- 42% of Full-Time workers in small companies
- 82% of Full-Time workers in large companies
- 37% of Part-Time workers
The cutting of healthcare and retirement plans is only one way that contractors appear to save the local government money by contracting their services. We all know that the cost of labor is one of the largest pieces of the fiscal pie. For contractors, slashing wages is the fastest way to meet a new lower bottom line.
“Contractors, including Aramark, Sodexo, and Compass, cut cafeteria workers’ wages by $4-6 an hour following the privatization of food service. As one of the workers interviewed for the report explained, “When [a private contractor] took over, it was $8 an hour to start… 10 years [later] and it’s still only $8/hour.”
In Massachusetts, “Wages were slashed as the contractor reduced the pay of custodial jobs that paid an average of $19 per hour as public jobs to between $8.25 and $8.75 per hour. Employees like Rick Thorne, who had worked for the school system for 22 years, and made $20 per hour as a custodian, couldn’t afford to take the new poverty-wage positions with Aramark.” (ITPI)
NBC News also reported on a similar trend they called “domestic outsourcing.” NBC told the story of bus drivers in the greater Memphis area. After the school year concluded, the bus drivers were gathered and told they were all fired. Graciously the drivers were allowed to apply for the same job they previously held with a new contractor. Debbie DeCrow, an 18 year veteran of the school district was making over $15 per hour, now her new employer offered he a starting wage of “$10 per hour with no sick days or paid vacation.”
It is obvious that contractors are reaping the benefits by pushing workers further down.
On paper this all seems like a great way for local budget writers to save taxpayer money, until you add in the fact that by pushing workers wages down results in more of them being forced onto government assistance programs.
“Researchers found that school cafeteria workers working for contractors in California received an average of $1,743 annually in public assistance because of their low pay.” (ITPI)
When workers have less money that means they spend less in local stores. This is another problem for the local community. As spending at local businesses reduce, this means less business tax revenue for the states and municipalities. ITPI also notes that states have seen a reduction in income tax revenues as wages decline.
While the taxpayers thought they were saving money by reducing labor costs in their budgets, in fact they are subsiding the contractor’s profits with additional spending in low-wage assistance programs.
“When contractors fail to provide health insurance for their employees, or if the cost of buying into the employer’s plan is too expensive, workers and their families are forced to enroll in public programs, such as Medicaid or the state Children’s Health Insurance Program (CHIP), or simply rely on emergency room visits which are very costly for the public.” (ITPI)
The report concludes by sharing policy recommendations for reversing this dangerous trend, including:
- Requiring contractors to show that cost savings derive from increased efficiencies and innovation, not 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.
- Requiring governments to conduct a social and economic impact analysis before outsourcing
This report from In The Public Interest is just another example of how outsourcing jobs to low-wage contractors hurts the workers and the community.
Lets pull out the checkered flag and end this race to the bottom.