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Privatization Boosts Profits for Corporations but Shrinks Middle Class

Privatization Boosts Profits for Corporations but Shrinks Middle Class

According to a new report from In the Public Interest (ITPI)  the practice of outsourcing public services has resulted in growing income inequality and diminished quality of services at the public’s expense. Race to the Bottom: How Outsourcing Public Services Rewards Corporations and Punishes the Middle Class shows how corporate outsourcers have recorded huge profits by cutting corners and slashing worker pay, contributing greatly to decline of the middle class over the last several decades.

IPI Executive Director Donald Cohen told reporters in a conference call briefing:

False promises of privatization have triggered an alarming race to the bottom, as far-away corporate executives benefit from lucrative government contracts while local communities suffer the consequences of lower-quality services and middles-class jobs being replaced with poverty level wages. And by the way, local taxpayers inadvertently fund all of this.

In New Jersey, for example, food service workers had their wages cut by $4 to $6 an hour and many of their health insurance benefits wiped out when their jobs were outsourced to companies like Aramark, Sodexo and Compass. According to the report, food service companies have among the highest levels of employees and their children enrolled in the New Jersey FamilyCare program—driving up poverty and likely costing taxpayers far more than any savings realized from privatization.

Mary Sparrow was a housekeeper at the Milwaukee County Courthouse. She said, as a county employee, she made $14.29 per hour plus health care and other benefits. But in 2010, the county outsourced the custodial services to a private company.

“They offered me $8 an hour, with no benefits.” She turned it down. Now, unable to find work, she’s had to raid her son’s college fund to cover living expenses. She said:

Privatization has had a devastating effect on our community. Not just in terms of what we get paid, but we also aren't spending money at local businesses for even the most basic necessities like medication and housing. This has just been awful for us and I hope any community will think about our story before looking to privatization.


In Michigan, nursing assistant jobs at a veterans home went from a $15–$20 hourly wage with health benefits to a starting wage of $8.50 per hour with no benefits after the jobs were outsourced. The IPI report cites studies that show the cuts resulted in higher turnover among the outsourced nursing assistants, and ultimately, lower levels of reliability and quality of care for veterans. 

Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities, said:

Right now Americans are engaged in a conversation about income and wealth inequality. Not since the gilded age has the gap between the super-rich and everyone else been so wide. In theory, privatization is a great deal for taxpayers because it saves a few bucks in the town budget. In reality, taxpayers are funding the downward spiral of their own communities—and often paying far greater costs in the long run.

The entire report can be downloaded here.

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