The impacts of privatization – lower wages, no benefits and no protection on the job for workers, and forcing the workers to use public benefits – ripple throughout local economies, according to a new report.

Race To The Bottom: How Outsourcing Public Services Rewards Corporations And Punishes The Middle Class, by the think tank In The Public Interest, “is important research that connects how privatization has far-reaching, negative effects in the community well beyond the contract itself," said Brooks Sunkett, vice president of CWA's Public, Health Care and Education Workers sector.  

CWA helped commission and pay for the report, which shows how privatization hurts not just the workers involved, but their communities and economies. “Outsourcing public services sets off a downward spiral in which reduced worker wages and benefits can hurt the local economy and overall stability of middle and working class communities,” the report says.

University of Colorado Professor Daphne Greenwood documented the ripple effect in the local economy, reporting that “in a medium-sized American city, dollars spent in the local economy fall from 49 percent of total payroll to 9.5 percent,” after privatization.

The report has several recommendations to solve the problem of public jobs being converted into low-income no-benefit contracted-out jobs. They include: Governments should ensure cost savings that contractors promise come from better efficiency, not wage and benefit cuts; States and local governments should track how much money is spent on private contracts,” how many workers they employ and their wage rates and the information should be public, online, and governments should conduct a social and economic impact analysis before outsourcing and make it public before voting on the outsourcing.  The analysis should include expected changes in staffing, wages and benefits, expected impacts on social services and public assistance programs, the racial and gender mix of affected workers – and how many would be retained or fired – and the expected impact on workers' housing, local businesses and local tax revenue.

“This will ensure that policymakers and the public fully understand the ramifications of any outsourcing decisions before the contract is signed,” the report says. “Raising worker standards is an important part of building a robust middle class and chipping away at income inequality.  When workers can support themselves and their families, the whole community wins.  There is more spending in the local economy, city and state tax revenues increase, and hidden costs on government budgets diminish,” it concludes.