Is Contracting Out Good or Bad for Employees? A Review of International Experience

Abstract

The past decades have witnessed an upsurge in governments' use of contracting out as a means of reforming and privatizing public service delivery. This development has to a large extent been driven by efficiency and cost-effectiveness concerns, but may also result in important changes in the working conditions and work environment for the personnel in public organizations. In this article, we present the findings from a systematic review of studies documenting the consequences of contracting out for employees. The review is based on 26 empirical studies published between 2000 and 2012. We find both positive and negative effects for employees documented in the literature, although with a predominance of negative effects, including reductions in the workforce and other changes in the workforce composition such as the replacement of experienced employees with younger workers, poorer working conditions, lower salaries, fewer benefits and reduced job satisfaction. We conclude that poorer conditions for the public service personnel are well documented as a short term consequence of contracting out, while more studies covering a longer time-span are needed in order to assess whether the predominantly negative effects are transitory or will persist over time.

Is public procurement efficiency conditioned by market types? A critical test in park and road sectors in Sweden

“…Johansson (2008) concludes that " [it] is … shown that larger municipalities situated in metropolitan areas use external suppliers to a greater extent" (p. 258), a conclusion supported by Levin and Tadelis (2010). Larger municipalities seem to attract contractors, or be more likely to engage in tendering processes, compared to smaller municipalities (Kjaer Foged, 2016;Vrangbaek et al, 2013).…”

“…Therefore, continuity and the time dimension are also of theoretical importance, neither of which are discussed further here. The critical stance of marketization theory relies on the assumption that the public sector is driven by value systems that are different to those in the private sector, assuming that the qualities of their activities are worlds apart (Helby Peterson and Hjelmar, 2013;Vrangbaek et al, 2013). From these somewhat opposing approaches to contracting out, we aim to test the extent to which the data at hand responds to the theoretical expectations.…”

The many outcomes from contracting out: The voice of public managers

“…Our study also provides evidence of the potentially conflicting evaluation of key outcomes. All told, while contracting out has been associated with negative outcomes for employees (Vrangbaek et al, 2015), several public managers indicated that being released from internal staff management responsibilities was a positive outcome and improved the managerial focus (e.g. on more user-oriented core tasks).…”

“…O'Flynn and Alford (2008 highlighted a dilemma between the requirements to separate organisational responsibilities and those for accessing sufficient knowledge for well-working contract management as one key outcome for public management. Likewise, the employees in public-service-providing organisations have been found to be impacted significantly by the implementation of contracting out by, for example, adverse changes in employment rates and terms (Vrangbaek et al, 2015. The impact of contracting has also been discussed from the viewpoint of broader governance perspectives.…”

“…However, the predominant approach to the study of contracting outcomes emerges as somewhat 'narrow' when contrasted with a) the broader range of approaches and criteria of potential relevance identified in the general literature on public management and performance (Andersen et al, 2016;Boyne, 2002;Hansen, 2017;Pollitt and Bouckaert, 2011;Walker and Andrews, 2015); b) the few studies that have approached contracting outcomes from alternative perspectives, such as citizens' perceptions (Andrews and Van de Welle, 2013), consequences for staff (Vrangbaek et al, 2015), accountability issues (Hodge and Coghill, 2007;Mulgan, 2006), challenges for management (Kettl, 2010;Lindholst and Bogetoft, 2011) and the distribution of power (Hansen, 2010a); c) studies emphasising the multidimensional and composite characteristics of contracting outcomes (Amirkhanyan et al, 2010;Fernandez, 2009;Lindholst, 2017); qualitative studies enabling broader narrative accounts (Jones, 2000;Romzek and Johnston, 2002).…”