When Outsourcing Stays Domestic

The move to repeal so-called Obamacare is about to run into a new wall in this cost-reduction mood of both corporate and governmental America. Not only will there be tons of laid-off government workers as budget cuts are implemented to cut raging deficits and unsustainable spending habits – all of them straining the healthcare safety nets with limited alternatives for coverage – but the new pattern of going-forward labor in America is going to test healthcare and social security retirement benefits in this country like never before. Gone are the days of tenure and job security. Workers do and shall increasingly continue to change jobs with startling frequency, sometimes of their own volition, but more likely because their “contracts” have expired. Welcome to the world of short-term outsourcing.

Fearful of the benefits that attached to traditional employment, companies and governments have discovered that they can sidestep seniority, medical leave, vacation time, healthcare insurance and pension benefits simply by entering into short-term contracts with workers to perform specified tasks (often looking a lot like what a regular employee should be doing) for short and clearly defined time periods. If these “contractors” do a good job, they might be offered another short-term contract… and so on and so on. There’s less in the way of training and accountability, but something’s gotta give. And these contract workers they really don’t have to be accorded full-time employment with full government/company benefits.

For some workers, mostly commitment-phobic younger ones who still enjoy their autonomy, this structure is ideal. Some even form little companies that can perform such tasks for various “employers,” and generate enough to pay for their own benefits. For small companies, the ability to outsource functionality actually provides them with sufficient competitive advantage to “act big, but remain small,” providing flexibility as customer demand vacillates and as changing technology and expertise requires a constantly-changing set of skilled vendors. For others, it is nothing more than a cheaper way to maintain a large bureaucracy.

New outsourcing services have sprung up as clearing houses and payroll services to provide such short term workers. And as long as the economy holds nothing but staggering unemployment statistics for the foreseeable future, it seems that this new work pattern is going to be the single most important change in how Americans work for a very long time. Where governments have discovered this cost-savings structure, the middlemen (outsourcing agencies) have done well with their cut, the governments are think they are saving money… but the workers and those who use their services… well… not so great.

The November 6^th New York Times examined the cost savings at a state run veterans home, where contract nursing assistants are engaged at half the wage rates of their full-time counterparts: “Now, the state wants to dismiss 170 nursing assistants on the public payroll at the [one particular] veterans home and replace them with more contract workers like [contract assistant nurse Ginny] Townsend [who makes about half the rate of her fellow “employed” assistants], prompting a legal dispute and much personal anguish… The legal battle highlights the potential pitfalls in such decisions. Outsourcing, usually intended to ease strained public budgets, tends to most directly affect people like Ms. Townsend and her co-workers. But there can be other drawbacks. The quality of services provided by contract workers, for example, may not be as consistent as that of experienced government employees. And taxpayers can end up paying for the cuts in more indirect ways.

“What governments save in salaries and benefits often ‘ends up on the government books through all sorts of programs,’ said Paul C. Light, a professor at the Wagner School of Public Service at New York University, referring to unemployment insurance, Medicaid and other public assistance for workers earning low incomes… Outsourcing becomes more popular during tough economic times as states and municipalities transfer the operations of facilities like prisons, school cafeterias and sanitation departments to private contractors. Governors or legislatures in Arizona, Louisiana, New Jersey and Pennsylvania have all proposed reviews of state agencies in search of opportunities to privatize operations.”

With pressure on unions to let go of their powerbase in government services, the outcry is having limited effect: “Union leaders denounce the efforts to roll back years of negotiated wages and benefits. The public sector gave ‘people a chance to buy a home and send their kids to college,’ said Eileen Kirlin, executive vice president of the public services division of the Services Employees International Union. When contractors take over and pay lower wages, ‘we’re just driving everybody down.’” NY Times. But governments just don’t have the money to continue past practices: “With state budgets under pressure, Michigan says it can no longer afford the relatively high wages of the public workers, which range from $15 to $20 an hour, along with health and retirement benefits. According to Salary.com, certified nursing assistants in private long-term care facilities in the area earn a median salary of just over $25,000 a year, or about $12.25 an hour.” NY Times.

The cost to us all is what economists have been predicting is the big “reset” from this recession: the erosion of the American middle class. And while outsourcing may be viewed as a necessity for cash-strapped states and municipalities, it also provides convenient savings for those at the top of the economic pile. What we are seeing in countries like Greece – an austerity program that is slashing at a standard of living that was implemented through unsustainable debt – is also happening in this country, albeit at a drastically lower level and often well-beneath the macro-economic radar. But the middle class is contracting significantly in this country, and what we will be like in future years is unlikely to reflect the halcyon days of American global economic hegemony.

I’m Peter Dekom, and change can be very unsettling.