Canadians were justifiably outraged when Electro-Motive, owned by Caterpillar, threatened its London, Ont., workers with a 50 per cent pay cut and then left Canada in search of cheaper labour in the U.S.
In Toronto, a similar story is unfolding, only it’s city council — not an industrial giant — that poses the threat.
City council is considering whether to outsource up to 1,000 civic cleaning and janitorial positions to low-wage private-sector contractors. Pay rates for the hard work of keeping our public facilities clean and safe would face a Caterpillar-style reduction of as much as 50 per cent.
The proposal has been positioned as part of the mayor’s ongoing “gravy train” exercise under the guise of tackling the city’s deficit. But with the city now on track for a $154 million surplus, it seems that the atmosphere of fiscal “crisis” has been overblown.
On the anticipation that private cleaning firms would pay their employees just slightly above the minimum wage (a common practice in private cleaning agencies), some think the city could save $20 million or more by outsourcing. Before jumping at the chance for quick savings on the backs of cleaners, city councillors should carefully consider the implications of outsourcing, which can produce unexpected consequences that blow back — fiscally, not just socially.
We have reviewed academic research regarding the experiences of other jurisdictions which privatized service positions. Our review suggests that hoped-for savings must be balanced against the other economic, fiscal and social consequences arising from the transfer of an important public function — cleaning — to the lowest-cost external bidder.
We developed five categories that should be considered, as part of a more comprehensive cost-benefit analysis of sourcing decisions:
- Fiscal costs associated with the outsourcing itself, including the costs of tendering, supervision and compliance; severance costs for displaced workers; profit margins captured by suppliers; and the costs of unexpected or irregular cleaning functions not covered in standard contracts.
- Lost government revenues as a result of a shrinkage of the tax base. The loss of decent jobs will produce lower income and sales taxes, user fees and even property taxes. While some costs are borne by other levels of government, from a social cost-benefit perspective they are still relevant — all the more so given Toronto’s dependence on fiscal transfers from other levels.
- Higher social program costs resulting from the elimination of living-wage jobs with the city, and their replacement by poverty-level, insecure jobs with private cleaning contractors. Statistics indicate clearly that public program costs for health care, social assistance, means-tested pension programs, and even policing and security services will increase with the preponderance of low-wage employment.
- Potential public health and safety costs resulting from inadequate cleaning standards, including infections, workplace accidents, or liability issues.
- The broader costs associated with a decline in social cohesion. This is inevitable if the existing polarization of Toronto’s labour market, and Toronto’s neighbourhoods, is inadvertently reinforced by the city’s own actions. Modern, peer-reviewed scientific evidence (from disciplines as diverse as health, economics and criminology) has documented that inequality and marginalization impose enormous costs on all parts of society, including higher expenditures for government. After all, how does taking more than $20 million from the pockets of working families help any neighbourhood?
For all these reasons, it cannot be assumed that cutting the incomes of experienced cleaning workers in half will be reflected dollar-for-dollar in savings for the public sector. It cannot be assumed that there are ultimately any bottom-line savings at all.
At stake is not whether city council can shave a bit of upfront expense from its budget, but rather whether the outsourcing of cleaning work ultimately enhances the public interest. Our cost-benefit analysis indicates this is not a simple judgment.
Any savings the city does yield, of course, are on the backs of individuals and families who lose the chance to enjoy decent, middle-class incomes and security for their labour.
But it’s not just morality that councillors should consider, it’s cold, hard fiscal arithmetic. The risks of long-run fiscal “blowback,” through the indirect and unintended consequences of outsourcing, are real — and councillors should consider them carefully.
Robert Dryden is a Toronto-based researcher. Jim Stanford is an economist with the Canadian Auto Workers union. Their report for the Canadian Centre for Policy Alternatives, “The Unintended Consequences of Outsourcing Cleaning Work,” is available at www.policyalternatives.ca. This piece originally appeared in The Toronto Star.