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Outsourcing Perpetuates Economic Inequality

The University of California has pioneered replacing employees with contractors. It's a cancerous trend.

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Elizabeth Ortega-Toro
  • Elizabeth Ortega-Toro

When employers "outsource" full-time staffing needs to temporary workers, independent contractors, or other outside firms, it's almost always about paying people at the lowest end of the wage scale less for the benefit of those at the top. Outsourcing delivers savings on health insurance, overtime, worker's compensation, and enforcement of any number of basic labor standards that ultimately finds its way into the pockets of high-priced executives and shareholders.

Some outsource portions of their operations overseas. Others bring in a contractor to clean offices or handle security. Hospitals do it through so-called "agency" or "registry" workers. Still others subscribe to a "gig" economy model, where workers can spend years serving an employer without ever being treated like a regular employee.

In the first five years following the Great Recession of 2008, these types of arrangements outpaced growth in traditional employment by a staggering rate of nine to one. Private firms were doing it. Public institutions were doing it. Some invented clever terms to try and legitimize the activity, like "public-private partnership."

Fast forward a few years and everyone is talking about the widening income gap between those at the top and those at the bottom. The question is, what do we do about it?

Raising the minimum wage floor is a long overdue start, to be sure. But it's also a little like putting a band-aid on a metastasizing tumor.

Nowhere has this radical shift in employment relationships been more evident than at California's third largest employer — the University of California.

After state funding fell during the recession, UC tripled tuition and intensified its efforts to outsource more living wage jobs to contractors that pay less. Operating more like a private company than a public university system, UC has used outsourced almost everything — IT work, parking, security, custodial, landscaping, and even hospital technologists.

By 2015, as the often illegal and exploitive practices of outsourcing firms started to create headaches for the university, it tried to change the narrative. First, it announced a $15 minimum wage for outsourced workers that it hasn't bothered to enforce. More recently, it's gone down the path of "public-private partnership" — best exemplified by UC Davis' Aggie Square Development.

The plan at Aggie Square includes outsourcing an entire adult rehabilitation unit — 40 jobs — to a joint venture with a private equity-controlled health staffing firm whose median wage for the same work is about 50 percent less, and whose CEO earns about $11 million per year.

At the same time, UC has signed secret deals to spend hundreds of millions of dollars outsourcing other jobs. It's even put out requests for proposals to share its poverty-producing savings with the California State University system and California's community colleges.

For UC's highest-paid elites, these schemes already appear to be paying off. Between 2005 and 2015, UC Administrators saw their pay rise 64 percent and the pay gap between UC's top 1 percent and everyone else grew by 29 percent.

Even California's state auditor has now conceded that the University is actively trying to replace its frontline, unionized employees with lower-wage contractors. Instead of bargaining over its outsourcing plans, as required by law, the university has forged a path of serial lawbreaking that marginalizes the most vulnerable segments of its workforce.

We need to stop deluding ourselves into the idea that the non-traditional employment relationships that perpetuate economic inequality are just a private sector problem. California's premier public university system is doing the same thing, and its employees, students, and patients deserve better. 

Elizabeth Ortega-Toro is the executive secretary-treasurer of the Alameda Labor Council.

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