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 to assess whether the predominantly negative effects are transitory or will persist over time.