Why outsourcing government work to the private sector is dumb

Outsourcing government work to the private sector may not be as cheap as advertised

Here’s a great read from this AMs NYT on how the outsourcing of jobs by the federal government ends up costing more than it would to do the work in-house.

“The study found that in 33 of 35 occupations, the government actually paid billions of dollars more to hire contractors than it would have cost government employees to perform comparable services. On average, the study found that contractors charged the federal government more than twice the amount it pays federal workers.”

But wait, you’re thinking…isn’t it well established that government workers are paid more than comparable workers in the private sector? (Actually, that’s typically not the case for workers in white collar professions; more so for blue collar.)

Well, the folks who did this study—The Project on Government Oversight—went about it in a more revealing way than simply comparing pay rates between sectors. They compared the costs of private sector contracts with what it would cost to do the work by the federal workforce. The result, then, is due to the mark-ups over labor costs in the contracts.

In other words, while the pay differential between a government accountant and a private sector accountant is about $40,000 per year ($125K vs $83K, see Table 1 in the report), the annual billing rate by the contractor is $299K! Peruse this table…it’s an eye-opener.

It’s a great example of how you’ve got to carefully check out those knee-jerk, ideologically-motivated positions like the one that we can save taxpayers oodles by outsourcing government work to the oh-so-efficient private sector. It’s but one study, and it’s worth following up with more of this type of research. But it suggests that while the private sector may pay its line workers less than does the gov’t, somebody’s cleaning up on the overhead, and at taxpayers’ expense.