THE BLOG

Raising Wages: States and Cities Can Follow Obama's Lead on Tackling Inequality

06/30/2014 03:11 pm ET | Updated Aug 30, 2014

Earlier this week, the White House held a summit on working families to tackle growing economic inequality and the economic struggles ordinary Americans face. Corporate profits and Wall Street returns have bounced back, but far too many families still struggle under the weight of underemployment, stagnant wages and wealth inequality.

President Obama has taken important steps using his (constitutionally appropriate) executive authority to raise wages for workers of federal contractors. His action acknowledges that our tax dollars are funding several million low wage jobs and increasing economic inequality. And he took concrete steps to ensure that our tax dollars don't increase working poverty and further erode the middle class.

States and cities across the nation should follow President Obama's lead. The growing trend towards outsourcing of public service jobs that provide stable middle class jobs in cities and states is fueling the growth of low wage work and growing the nation's income gap.

Collectively, governments at the federal, state and local level are the largest employer in America. For decades, these public services have existed as intentional ladders of opportunity into the middle class.

Recent research shows that private corporations have sought to cash in on the services and infrastructure that working Americans rely on every day, while slashing wages and benefits in the process.

Without taxpayer protections outsourcing has led to privatized public services that no longer provide middle class careers that families relied upon.
For example:

o In New Jersey, food service workers had their wages cut by $4-6/hour and many of their health insurance benefits wiped out when their jobs were outsourced to companies like Aramark, Sodexo and Compass. Food service companies have among the highest levels of employees and their children enrolled in the New Jersey FamilyCare program - driving up poverty and likely costing taxpayers far more than any savings realized from privatization.

o In Michigan, nursing assistant jobs at a veterans home went from a $15-20 hourly wage with health benefits to a starting wage of $8.50 per hour with no benefits after the jobs were outsourced. Studies show the cuts resulted in higher turnover among the outsourced nursing assistants, and ultimately, lower levels of reliability and quality of care for veterans.

o In Milwaukee, the county outsourced nearly custodial jobs to MidAmerican Building Services, a for-profit company that slashed compensation so much that many county workers with families could no longer afford to work there. One custodian skipped doctor visits to save money and had to dip into her son's college fund to pay for daily necessities. Another custodian was forced to cut back on treatments needed by his disabled son due to the loss of income.

The suffering of working families who see their paychecks cut effects entire communities. According to research by University of Colorado economics professor Daphne Greenwood, when contractors cut wages, public service workers have less income to spend in their communities. That's less shopping at local retail businesses, less eating out at local restaurants, and less economic activity across the entire community. Local and state governments collect less in sales taxes to reinvest in community schools and infrastructure. Workers are also less likely to earn enough to buy a home, and sometimes must move out of the community all together in search of affordable housing. These consequences mean that the effects of outsourcing on a community aren't limited to wages and benefits, but are widespread and can harm entire communities.

In order to prevent this downward spiral, local, state and federal government agencies should require contractors to pay a living wage and provide fair benefits. Similarly, governments should track and make publicly available information on how many public service jobs are being outsourced, and what those workers are being paid. Finally, it is essential that governments conduct social and economic impact analysis before agreeing to any contract. The full impact on the community, not just the change in cost of services, must be accounted for.

Local and state governments must guarantee that any company that wants to profit off local taxpayers must also make a commitment to the local community by ensuring working Americans with public service jobs aren't left behind. Otherwise, privatization just ends up rewarding the few while punishing the middle class.