City, county outsourcing leads to fewer full-time jobs

BLOOMINGTON, Ind.—A study of nearly 500 city and county governments demonstrates that private-sector contracting results in lower full-time public employment and higher numbers of part-time government workers. The study, led by Indiana University School of Public and Environmental Affairs Professor Sergio Fernandez, with coauthors Craig Smith and Jeffrey Wenger of the University of Georgia, appears in the current issue of the Journal of Policy Analysis and Management.

For each additional service contracted out to a for-profit firm, full-time employment declined by approximately 20 employees and part-time employment increased by about nine employees, according to the report. However, the use of non-profit firms as contractors resulted in no changes in either full-time or part-time employment. Service provision by other sectors of government was associated with higher numbers of full-time employees, suggesting that contracts with other government agencies were undertaken for reasons unrelated to efficiency. According to the authors, this research helps to clarify earlier findings that private outsourcing had little to no effect on public employment.

"The net effect on total government employment may be minimal, but that is masking the effects on full-time and part-time employment," said Fernandez. "With privatization, the public sector is getting more temporary workers, part-time workers, and seasonal workers who don’t have job protections or benefits and have not gone through the official civil service hiring process that includes thorough background checks and exams. This gives the agency more flexibility in making changes to the workforce."

Fernandez said it is difficult to draw conclusions about the merits of outsourcing based on this data. "It’s a normative question whether losing full-time employees and gaining part-timers is a good or bad thing. People who want smaller government might be satisfied with the conclusions as an indication that outsourcing works. On the other hand, unions and public employees might feel that this research confirms what they have feared all along."

The data for the study was drawn from the two most recent International City/County Management Association’s Alternative Services Delivery Surveys, conducted in 1997 and 2002, and combined with U.S. Census information on government finance and employment/payroll surveys from those years. These sources provided a representative sample of 484 local governments in localities ranging in population from 2,565 to 3.6 million.