Dumping, Again, on the Lowest-Paid Folks

A recent article in the Washington Post highlights an issue I alluded to in my recent post on government outsourcing  functions.  To summarize:  The Alexandria school superintendent’s budget proposal called for eliminating 30 custodian positions and outsourcing the jobs to a private company.  (The system already contracts with private companies for custodial services in many schools.  This proposal would have completed the outsourcing.)  The reason for the proposal was budget savings.  After a lot of blowback, the superintendent relented some, proposing that custodians who had worked for the school system for at least five years could keep their positions during the next school year.  That left 10 custodians facing the loss of their jobs.

This sort of outsourcing is common at all levels of government.  In Richmond, the custodians for state buildings are not state employees, but work for a company that has contracted with the state to clean the offices.  The same is true for security guards at the entrances to state buildings, with the exception of the Capitol Police.

Contracting out state jobs has serious consequences for the people affected.  First of all, there is the issue of their salaries, which will likely be less than what the government was paying them.  More importantly, perhaps, is the loss of health insurance.  Government employees also have pension plans, which are unlikely to be available through the contracting company.  Other important fringe benefits, such as paid medical and vacation leave, are not likely to be available with a contractor.  As a result, an employee affected by outsourcing may have to choose between coming to work when sick or losing pay.  Likewise, a parent staying home with a sick child would lose pay.  Another major consequence is the sudden lack of stability.  A government custodian or security guard may or may not be hired by the contractor when his or her job is outsourced.  Even if he/she is kept on, that company may lose the contract to another company later on, creating additional uncertainty.

The obvious response to these observations is, “If a private company can do these government functions cheaper than the government can, why should the taxpayer pay more for the government to do it?”  The answer is that there are costs to outsourcing that do not show up on the specific government agency’s bottom line.

We have recently been discussing the concept of externalities on this blog and I think that concept applies here.  If the government worker whose job is outsourced loses his/her health insurance, at some point, there will be a cost to the public, whether it is a hospital having to eat the cost of indigent care or Medicaid paying the cost.  Even if the worker makes enough that he/she does not qualify for Medicaid, but can be covered under Obamacare, the federal government, i.e., the taxpayer, will subsidize the cost of private medical insurance.  We have discussed the problem of affordable housing.  Does it make sense for the government to outsource jobs with the result that workers will be less well off and, therefore more likely need subsidized housing?  We have discussed the importance of stable families to the development of children.  When a parent has to worry about the stability of his/her job and paying the rent and medical bills with fewer resources, he/she has less time and emotional resources to devote to the kids.

There are also costs, albeit intangible, to the agency.  Generally, a regular employee feels more invested in, and loyalty to, his/her employing agency, than does a contractor, especially those in the lower-paid ranks.  An employee is treated as part of the team or “family”.  Contract workers are often the outsiders, who do not get to participate in office social activities, such as birthday celebrations, baby showers, etc.  Unlike full-time employees, contract workers may not report consistently to the same workplace, but rather be rotated among different sites under contract to their employer.  The result is likely to be work that is not as consistent and of lower quality.

And, dare I say it, there is an element of right and wrong here.  It is not right for governments to treat its lowest-skilled and lowest-paid workers differently than it does the rest of its workforce.  As an Alexandria School Board member put it, “It is wrong to balance the budget on the backs of some of our lowest-paid employees.”

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14 responses to “Dumping, Again, on the Lowest-Paid Folks”

  1. LarrytheG Avatar

    Dick is right. What “they” are “saving” is the health care benefits but taxpayers will pick them up so it’s really a shifting of costs from the taxpayers for the schools to te taxpayers of… the county and state.

    So is it a true savings to taxpayers or just shifting costs.

    The thing that strikes me about this issue – all along – is our willingness to essentially not care if workers get health insurance – or not – until it falls on us via MedicAid and then what do we do? we oppose Medicaid for workers (i.e. the Medicaid expansion).

    How can any of us in good conscience essentially support denial of health care to our lowest paid workers? it’s not like they don’t work – they do and most of those jobs (like cleanup crews) is NOT easy work.

    Apparently, providing health care to our lowest paid workers is that EVIL “socialism”, eh?

  2. vaconsumeradvocate Avatar

    This is a significant problem in our workplace. Too many people are losing benefits. Companies and governments no longer feel any obligation to provide benefits – especially retirement. The burden is quickly being shifted to the employee. If the employer can’t afford it, how can the employee? While a few people have the time, education, and interest to carefully plan and manage a retirement portfolio, most of us do not.

    Financial literacy is so low that it is unreasonable to expect that the average citizen is prepared to take on the task of funding and managing their own retirement. The financial education provided to students is minimal, at best. We do not have a systemic way to teach everyone all they need to know to make the right decisions at the right time to ensure they are prepared financially for retirement. I truly worry that we will soon have elderly starving on the streets, physically and mentally unable to continue working but having no funding on which to live.

    The heated political rhetoric today accuses those who think government should help of calling for socialism. However, capitalism is not taking care of employees. Capitalists are not making sure workers can live on the wages paid and save adequately for retirement. Every person is on his/her own.

    As a society, we cannot afford to continue in this direction. We must find ways to ensure everyone can be responsible and can adequately prepare for retirement. We can’t continue letting big businesses declare bankruptcy and jettison their retirement obligations. We can’t continue decreasing the retirement plans available to workers and realigning businesses so workers alone have this responsibility.

    If we want workers to be able to retire at some point, we’ve got to change expectations and get businesses to contribute to and manage retirement assets and government must not withdraw from the task as some keep suggesting. If professional retirement fund managers can’t set aside enough funding for future retirement obligations of companies or governments and manage so that it is available when needed, how do we realistically expect citizens with minimal financial literacy to do better on their own? Folks are also fighting efforts to establish a true fiduciary standard. The average citizen in the average job is in a no-win situation.

  3. djrippert Avatar

    Supply and demand in the market dictates the price of wages for people performing janitorial services. Governments overpaying for these services are wasting money. The missing point in this article is that the money being wasted is not the school district’s money. It is not the city council’s money. It is the taxpayers’ money. This wastefulness increases property taxes – whether paid by homeowners to the city or renters to their landlords. The waitresses, taxi drivers and construction laborers who don’t have a benevolent government employers spending other people’s money have to pay these higher prices. How is that fair?

  4. TooManyTaxes Avatar

    Of course, the Alexandria Schools are right to outsource work that can be done more cheaply by contractor. Or they should state that they are a jobs program that puts the interests of employees over students, parents, teachers and taxpayers. Might some of them wind up on Medicaid? Yes, it’s possible but no different than when people are laid off from private sector jobs.

    And if we really cared about our least educated and low-skilled employees, we start enforcing our immigration laws. The availability of unauthorized workers who will often work for extremely low wages and no benefits clearly unminds those Americans at the bottom of the economic ladder. But it’s easier to bash capitalism. And I guess prudent government.

  5. Acbar Avatar

    Dick, you strike me as perilously close to advocating a “living wage” and full benefits package for all workers at any government job whether they are contract labor or direct hires. Why not be done with it and say all jobs? As TMT says, just make it a “jobs program.”

    I happen to agree with your basic argument: pay for benefits like health care up front or pay later when the guy shows up on Medicaid, but society will pay one way or another. There’s always the question of whether the business employer who manages to push those costs off on to taxpayers sees it the same way. Which is why some (including me) question whether employers ought to be in the loop at all — why not make health insurance a universal benefit of citizenship and leave employment and employers out of it?

    The same arguments can be made for minimum conditions of employment like mandatory vacation benefits, guaranteed minimum work hours and minimum wages — the sorts of things Uber drivers are demanding. Aren’t you really saying the Gig Economy is simply fundamentally unfair to lower income workers (whether a State agency is paying for the work or a private company)?

    1. djrippert Avatar

      I do agree that the question should be “all jobs” rather than “government jobs”. Setting up government workers as a special class of employees to be mollycoddled by special rules that don’t apply to private sector employees just increases the public’s disdain for and mistrust of government. Your comment opens up a lot of cans. Some may be full of healthy delicious food, some full of worms.

      Medicare for all.
      Living wage.
      Mandatory employment benefits beyond health care.
      Issues with the gig economy.

      These will all be issues in the 2020 presidential election. They will affect workers in Virginia. Perhaps we need to start threads of blog posts on these topics much as we have threads on energy regulation, human settlement patterns, marijuana law reform and anthropogenic global warming / climate change.

      1. LarrytheG Avatar

        When you look at the other 30 plus countries that have universal health care – they don’t have the “outsourcing” problem the way we do. There is still a reason to outsource as long as government wages are more than private sector wages for the SAME work but with health care out of the equation – it’s a tighter calculation.

        Then, when you ADD back – taxpayer-funded health care for outsourced workers – is it worth it?

        In some ways – we already have “universal health care” in the US when you consider MedicAid and EMTALA – we actually will treat most folks but the WAY we do it – has totally distorted the way health care is priced and delivered with cross-subsidies the norm and external costs – like other government additional benefits for those who did go bankrupt from medical bills.

        It’s not about eating “better” food or obesity or any of these things – it’s about basic health care for those who DO HAVE diseases LIKE obesity and Diabetes – if you scan and detect these diseases in the early stages they are manageable for a lot less than if they are not detected and do tremendous damage , cardiovascular and organ and amputations, etc. – and these ARE ALSO paid for by taxpayers for those who never had insurance nor regular primary care.

        It’s just plain dumb to do what we are now doing. Look at the other 30+ countries that have basic universal health care; they pay 1/2 what we do – and all of them have longer life expectancies.

        What more “proof” do we need to address this core question?

        You wanna call it “socialism”? Yes.. the most developed countries on the face of the earth with the highest literacy rates and longest life expectancies are “socialist”.

        Give me a break.

        1. djrippert Avatar

          I am not sure why you think off-shore outsourcing is not prevalent in Europe. It is common for British companies to outsource to India for example.

      2. Dick Hall-Sizemore Avatar
        Dick Hall-Sizemore

        Studies generally show that the salaries of Virginia state employees lag significantly behind salaries for comparable positions in the private sector. In return, state employees get: stable employment, a good health insurance plan, a good retirement plan, paid sick leave, and paid annual leave. (The stable employment advantage has taken a hit in recent years of budget cuts and the retirement plan has been modified to the disadvantage of the employee.) If that is “moddlycoddling”, so be it.

        1. djrippert Avatar

          You have to look at “total compensation”. Most notably, post-employment benefits like health care and pensions.

          I personally would rather see government salaries increased and pensions eliminated in favor of 401(k) plans. Too many people miserable with their jobs hold on in order to make the pension age. Too many underperforming employees are protected by management because it would be perceived as inhumane to terminate them within a few years of reaching their pension age / employment tenure.

          Your retirement should be yours not your employers.

  6. LarrytheG Avatar

    When we say “socialism” – are we saying that all of Europe, and a lot of Asia and New Zealand and Australia are “socialist”?

    What developed countries on Earth are not “socialist” using the meaning of that word as being used in the US?

    The “benefits” thing is one reason why ALL of these other countries have Universal health care so that no matter if you are a Janitor or a CEO – you have health care AND “outsourcing” is a different thing because the market price of labor is more about the cost of labor and not “benefits”.

    I’m NOT in favor of Medicare for All – It’s using a hammer to kill a gnat because for anyone who already has health care – fine – don’t take it away but for those who work – like those whose jobs have been outsourced AND for those who cannot get it , offer them a public option.

    Also – basic health insurance is NOT the same as better quality health insurance. Those who want more/better insurance and those who have worked hard to be promoted – should get more and better if they earned it. It would cover things like optical, hearing, dental and other things not medically necessary.

    So we cover everyone with basic insurance who do not have it, leave those who do have it alone, and let everyone work harder to earn more/better health insurance than basic.

    1. djrippert Avatar

      Socialism is about government controlling the means of production. If government takes over healthcare from the private sector then that is a step toward socialism.

      The problem I have with Bernie Sander is that he’s kind of a dim wit. He babbles and rants about Scandinavian socialism and then gets corrected by Scandinavians who know he’s full of gas.


      Sanders and Warren aren’t people who actually understand socialism, they are people trying desperately trying to get elected with the “free stuff” myth.

      France had a wealth tax but then ended it. Where is Fauxcohontas with that tidbit?

      Answer these questions:

      1. Tax revenues should constitute what percentage of GDP?
      2. How much of a deficit (as a percentage of GDP) is acceptable?
      3. How should the tax burden be allocated across major sources of taxes – individual income, investment, corporate, tariffs, wealth (if you must pursue a bad idea)?

      The lib-progs running for president as Democrats don’t seem to be able to come down with actual answers to these questions. Instead, they make high level erroneous statements about other countries.

  7. TooManyTaxes Avatar

    Bottom line. Every worker, public or private sector, must, over time, produce at least as much value to the employer as the employer pays in compensation to such employee. In the event such employee cannot deliver this value on a consistent basis, the employer must seriously consider terminating the employee.

    In the event that the problem is greater than one employee (i.e., a work group or department regularly fails to deliver more value that it’s costs), the employer may need to terminate the work group and either stop performing the function, hire a brand new team or use outside contractors. And with technology growing, some employers have the option of automation, including use of robots. Even if she were to hold her breath for a month, AOC cannot repeal the laws of economics.

    Of course, there are some people in society who cannot support themselves, including the very young, the very old and those with some type of severe disability. As a society, we can generally afford to offer social programs to help support these people.

    However, the larger the number of people to be supported, especially if we include those who failed to get a basic education or develop some marketable skills, the cost of support becomes unaffordable and drags down the quality of life and incomes for all but those at the top. And if other countries offer a more expansive system of government welfare, why not move to those countries instead of trying to force the rest of us to pay higher and higher taxes to support more and more people?

    Further, if we care about those at the bottom, why do we tolerate illegal immigration that brings in even more people without education and basic skills who drag down compensation for Americans at the bottom of the economic ladder?

    Spend and tax and borrow. Create more and more dependency, something that goes against human nature and degrades the dignity of human beings.

    1. Dick Hall-Sizemore Avatar
      Dick Hall-Sizemore

      I assume this rule about employees producing as much value to the company as they are paid does not apply to CEOs. According to a study by the Economic Policy Institute, CEO payouts rose about 1,000 percent between 1978 and 2017, whereas the S&P 500 rose 637 percent. Unless one wants to content that the CEOs were being underpaid to begin with, their increase in compensation outpaced the increase in the value of their companies to their stockholders. I doubt if many of them were fired.

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