Contracting out public services—which aims to help the federal, state and local governments save tax dollars—often has a harmful effect on the community, including worsening inequality and lowering wages.
A recent study, “The Decision to Contract Out: Understanding the Full Economic and Social Impacts,” finds that the savings of outsourcing varies widely and often diminish over 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 undermines our democratic principals by leading to corruption and less control over public funds.
“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.”
Studies show that contracting out typically leads to short-term savings of 5 to 10 percent. Over time, the savings often diminish because of a lack of competition and other factors. Continue reading