Privatization -Privatization -Impact on LaborImpact on Labor

ByBy

Bob HebdonBob Hebdon

Unionization – Overall Unionization – Overall ImpactImpact

Public/Private Union Densities

0

10

20

30

40

50

1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001

Year

Un

ion

Den

sity

Manufacturing Government Private Service

Unionization – By SectorUnionization – By SectorDensity by Occupation 1985 1995 % change

Urban Transit 49.9 39.1 -10.8

Postal Service 74.3 74.4 +.1

Sanitation 35.6 26.1 -9.5

Electrical & Gas 39.8 48.2 +8.4

Hospitals 14.7 14.0 -.7

Elementary & Secondary Schools 44.5 45.3 +.8

Social Services 15.9 15.1 -.8

General Government Administration 21.5 23.0 +1.5

Public Safety & Justice 43.7 45.8 +2.1

IntroductionIntroduction employment effects of privatization

(including impact on workers and unions) has received little attention by researchers

A DebateA Debate Savas (2000), argues that workers do not

lose job security, wages or conditions, or unionization as a result of contracting out - public employers provide generous adjustment policies for affected employees such as early retirement, job transfer, and no layoff policies

Kuttner (1997) argues that public sector employees suffer lower wages and job loss as result of privatization

The AgendaThe Agenda1. net job loss2. the labor market experience of

workers contracted out 3. impact on wages and benefits 4. more efficient use of labor by

private contractor5. potential adverse effects on

women and minorities

The AgendaThe Agenda6. new jobs in private sector due to

possible savings 7. effects on government workers who

survived privatization 8. the impact on unions and collective

bargaining

The EvidenceThe Evidence1. Job Displacement1. Job Displacement

Larger employers were found to be better able to mitigate the impact of job loss through such policies as hiring freezes, early retirement, transfers and retraining

a study of contracting out in Los Angeles County found less than 3% job displacement

1. Job Displacement1. Job Displacement

71 cases of restructuring in New York 71 cases of restructuring in New York State (taken from a larger mailed State (taken from a larger mailed survey of upstate towns and counties survey of upstate towns and counties by Warner and Hebdon 2000)by Warner and Hebdon 2000)

55 usable responses of which, 39 55 usable responses of which, 39 were cases of privatization, 11 were were cases of privatization, 11 were cases of contracting back in to the cases of contracting back in to the public sector, and the remaining 5 public sector, and the remaining 5 cases were contracting out to other cases were contracting out to other government or non-profit employergovernment or non-profit employer

242 employees affected242 employees affected

1. Job Displacement1. Job Displacement

A broad range of services were affected (e.g., payroll, school bus drivers, solid waste, snow plowing, ambulance, airport management, and human services)

Surprisingly, only 23% of employees found jobs with the private firm and an even smaller number (3.7%) obtained another job in the local town or county

1. Job Displacement1. Job Displacement using 1988 and 1992 ICMA data, Jackson

(1997) defines three categories of adjustment: – internal strategies (retraining, early retirement,

transfers); – selective use plans (only new services, tied to

attrition); – and private sector contracts (job offers to displaced

workers, wage parity, affirmative action requirement).

Two-thirds of cities surveys reported no labor adjustment strategy for privatization

Only 33% overall employed adjustment techniques in one of the three Jackson categories and only 15% of cities used at least one program in each or the three categories

2. Labor Market Experience of Laid Off Employees

A GAO (1985) Dept. of Defense study of 94 employees laid off as a result of privatization, found that 53 (56 percent) had collected some form of public assistance (defined as unemployment compensation, food stamps, Aid to Families with Dependent Children, and Supplemental Security Income)

3. Wages & Benefits & Benefits this samethis same GAO study (1985) of 128

former public employees showed that 53 percent of the workers that took jobs with contractors had lower wages, 21 percent had higher wages, and in 25 percent of the cases wages were the same.

At the local level of government, Peterson, Davis, and Walker (1986) also found that wages were lower in cases of contracting out

NY Study – wages and benefits reduced in majority of cases

4. More Efficient Use of Labor by Private Contractor

private contractors cut labor costs by using private contractors cut labor costs by using lower skilled workers when doing so would not lower skilled workers when doing so would not lower the quality of service providedlower the quality of service provided

service workers are more likely to be multi-service workers are more likely to be multi-skilled with more general talentsskilled with more general talents

the workforce will tend to be younger with less the workforce will tend to be younger with less tenure because of higher labor turnovertenure because of higher labor turnover

greater use of part-time or temporary workersgreater use of part-time or temporary workers private contractors are less constrained in private contractors are less constrained in

hiring and firing workershiring and firing workers

4. More Efficient Use of Labor by Private Contractor

The debate over airport security after The debate over airport security after September 11 and the outcome is a September 11 and the outcome is a case in point. Entrusted to private case in point. Entrusted to private contractors before September 11, contractors before September 11, airport security workers were often airport security workers were often poorly paid and minimally trainedpoorly paid and minimally trained

The result was low morale, high The result was low morale, high turnover and poor service. In the turnover and poor service. In the end, the congress decided against end, the congress decided against leaving airport security to more leaving airport security to more highly regulated private contractorshighly regulated private contractors.

4. More on Airport Security4. More on Airport Security From interview with Jonathon Karl, Oct.31, From interview with Jonathon Karl, Oct.31,

2001. 2001.

Questioner: Where are all these Questioner: Where are all these "professional" screeners going to come "professional" screeners going to come from? Unless these positions involve high from? Unless these positions involve high salary and benefits, the airports are going salary and benefits, the airports are going to have the same staffing problems that to have the same staffing problems that McDonald's and Burger King do.McDonald's and Burger King do.

Jonathon Karl: Well, everyone agrees, both Jonathon Karl: Well, everyone agrees, both sides of the debate, that these people need sides of the debate, that these people need to be paid more. You just can't get first rate to be paid more. You just can't get first rate security at 8 bucks an hour or less, as is security at 8 bucks an hour or less, as is sometimes the case.sometimes the case.

5. Adverse Affect on Minorities 5. Adverse Affect on Minorities and Womenand Women

governments employ minorities and governments employ minorities and women in higher numbers than in the women in higher numbers than in the private sectorprivate sector

women and blacks comprise 39.0% women and blacks comprise 39.0% and 12.8% of all wage and salary and 12.8% of all wage and salary earners, respectively (BLS 2000). earners, respectively (BLS 2000).

but in public administration, women and blacks are currently 44.0% and 24.0 %, respectively

5. Adverse Affect on Minorities 5. Adverse Affect on Minorities and Womenand Women

Thurow (1982) found, for example, Thurow (1982) found, for example, that women’s salaries were 20% that women’s salaries were 20% higher and minorities’ salaries 30% higher and minorities’ salaries 30% higher in public employment than in higher in public employment than in the private sector. This result is due the private sector. This result is due mainly to the higher levels achieved mainly to the higher levels achieved by women and blacks in government by women and blacks in government employment.employment.

5. Adverse Affect on Minorities 5. Adverse Affect on Minorities and Womenand Women

Research at the local level in Los Research at the local level in Los Angeles County revealed that Angeles County revealed that minorities were disproportionately minorities were disproportionately impacted by contracting out with a impacted by contracting out with a staggering 87% of the 1,300 affected staggering 87% of the 1,300 affected employees being members of a visible employees being members of a visible minority while only 50% of the Countys’ minority while only 50% of the Countys’ labor force before contacting out were labor force before contacting out were minority members (Los Angeles County minority members (Los Angeles County Economy and Efficiency Commission Economy and Efficiency Commission (1987)(1987)

6.6. Impact of Privatization on Impact of Privatization on “Surviving” Public “Surviving” Public

EmployeesEmployees ““Privatization or restructuring Privatization or restructuring resulting from private competition can resulting from private competition can lead to consequences such as shift lead to consequences such as shift changes, occasional overtime and changes, occasional overtime and transfers to different jobs at other transfers to different jobs at other locations. These in turn can throw car locations. These in turn can throw car pools, child care arrangements and pools, child care arrangements and even a person’s sleep patterns into even a person’s sleep patterns into turmoil.” Lassiter (1997)turmoil.” Lassiter (1997)

6.6. Impact of Privatization Impact of Privatization on “Surviving” Public on “Surviving” Public

EmployeesEmployees Example of a public sector agency– employee survey suggested that hypertension,

gastrointestinal, and cardiac conditions could have resulted from work-related stress.

– based on multiple indicators including increased forfeited leave, absences from required training, increased payment of overtime, and counseling visits through the employee assistance program

– High level of worker stress resulted in (1) problems in concentrating, (2) difficulty in making decisions, (3) inability to cope, (4) insomnia, and (5) anxiety

This was taken from testimony before the Senate Science Subcommittee on March 22, 2000 regarding the the downsized shuttle workforce at NASA

7.7. New Private Sector Jobs New Private Sector Jobs Due to SavingsDue to Savings

A report (Dudek 1988) cites one study that examined the impact of contracting out on secondary labor markets. The assumption here is that the savings from privatization will generate employment opportunities elsewhere in the economy

it ignores hidden economic costs of privatization. For example, after an examination of privatization in the mass transportation industry, Sclar, Schaeffer, and Brandwein (1989), concluded that the primary goal of transportation policy ought to be "to improve the speed, safety, and convenience of metropolitan travel."

On the other hand, the primary goal of privatization policy is to reduce the tax money that publicly operated systems receive to transport transit-dependent people, regardless of the effect on congestion, pollution, and the economic efficiency of the city. (Sclar et. al. 1989:1)

8.8. The Impact on UnionsThe Impact on Unions Pendleton (1999) study in the UK

– the bus industry has an equal mix of private and public firms competing for contracts;

– and a clear policy goal of the Thatcher Government was to weaken union power and influence. He compared conditions in 22 privatized firms with 25 public ones.

He found little or no differences between private and public firms on the extent of unionization and collective bargaining. Similar to our earlier finding, wages were significantly lower in the private firms.

found that employment levels were the same and sales efficiency was consistently lower in privatized firms

Value added was higher in privatized firms for this lower level of sales but only by “squeezing wages”

8.8. The Impact on UnionsThe Impact on Unions In general, the probability of remaining unionized after

contracting out is extremely small. In term of average union densities, for example, workers in the private service sector are seven times less likely to be unionized.

This conclusion is confirmed in my survey of contracting out in New York,

I show that out of 134 unionized jobs before contracting out, 99 lost unionization and only 1 gained unionization for a net loss of 98 unionized jobs after privatization. This means that 73% of all unionized jobs in the survey lost their union status after contracting out. The implication is clear that privatization has a de-unionizing impact. These results directly contradict the claims of some privatization supporters (e.g., Savas 2000).