Outsourcing Hits Service Workers in the Paycheck

Between 1947 and 1979, incomes grew for most U.S. households regardless of whether they were rich or poor. The period from 1979 to 2010 is a different story, with the bottom fifth of households losing ground and the wealthiest fifth gaining more than all other groups.

The figure below from the Economic Policy Institute’s State of Working America just about sums it up.

Click to enlarge

A new study by economists Arindajit Dube and Ethan Kaplan finds that the outsourcing of jobs is one force that has been pushing down incomes at the bottom of the income distribution since 1979.

The study tracks changes in earnings, hours and union status that result when janitorial and security jobs are contracted out as opposed to employed directly by a company. When these jobs are outsourced, the study finds, “outsourced workers receive lower pay, unionize at substantially lower rates, and are paid lower union wage premia.” Outsourced jobs also come with lower non-wage benefits, such as health insurance, and are less likely to be full-time.

This study got me thinking about a Philadelphia Inquirer report last week on a deal reached between the Philadelphia School District and the district's blue-collar employees:

Union leaders said they had put at least $20 million in concessions on the table.

"Under the four-year agreement that saves thousands of jobs, blue-collar workers will make direct contributions to keep schools open and to help the district solve budgetary problems," union officials said in a statement.

Many of the union's members are paid less than $30,000 a year, some less than $20,000. Givebacks could mean $6,000 less in workers' pockets annually, union leaders said last month.

Members will vote on the contract July 20. If it is ratified, the [School Reform Commission] SRC would have to approve it.

"This agreement will help keep public schools open, provide a clean and safe learning environment for our kids, and save jobs for thousands of hardworking men and women," union Chief George Ricchezza said in the statement.

The cash-strapped School District — its deficit for 2012-13 could be as much as $282 million — has said it needed at least $50 million in savings from "modernizing" transportation, custodial, and maintenance services. It had solicited bids to see how much private companies would charge for the work.

In this case, outsourcing of the school district's blue collar jobs was avoided but at a steep cost to workers' incomes. It is an example of how the mere threat of outsourcing can be used as leverage to lower wages for workers.

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