2002 Institute for Womens Policy Research Why Privatizing Government Services Would Hurt Women Workers
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Why Privatizing Government Services Would Hurt Women Workers

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This report analyzes the implications of privatization for women workers, especially those employed in low-end occupations. Data analyzed show that women disproportionately depend on the public sector for jobs that pay decent wages and offer benefits. This is especially true for African American and Hispanic women, and for women who do not have a college education. In part, higher wages and better access to health and pension benefits in the public sector can be attributed to higher rates of union coverage. The evidence suggests that privatizing government services will have a negative impact on women workers, especially those workers who are most vulnerable.

A Relative Decline in Public Sector Employment

Over the past two decades, employment in the public sector has grown much more slowly than employment in the private sector. In 1979, 16 percent of working men held public sector jobs, while in 1998 only 13 percent did. For women, the share employed in the public sector dropped from 20 percent in 1979 to 18 percent in 1998 (See Figures 1 and 2).

  • The proportion of workers employed in the public sector declined for both women and men between 1979 and 1998, with especially pronounced declines for African American and Hispanic workers.
  • In 1998 almost one in five women held a public job (18 percent), a higher rate than among men (13 percent). This was especially true for African American women (22 percent).

Public sector employment declined for both women and men between 1979 and 1998 with a somewhat sharper decline among men.

Public Sector Employees Have Higher Wages and Better Access to Health and Pension Benefits

Focusing on 1998, the most current year for which data is available, the report shows that median earnings in the public sector are higher than in the private sector for most categories of workers.

  • Median wages for women without a four-year college degree are 15 percent higher in the public sector. For women with a college degree, wages in the public sector are 7 percent higher than in the private sector.
  • Among women, 72 percent of public workers participate in a pension plan and 69 percent have employer-provided health insurance. By contrast, in the private sector less than half have either benefit, and in the case of Hispanic women, less than a third do (see Table 5).

Thus, privatization is likely to erode the wages and benefits of women workers, especially for African American and Hispanic women and those with fewer years of formal education.

Explaining Why Wages in the Public Sector are Higher than in the Private Sector

Wage ratios shown above are useful descriptions of employment conditions, but they can also be misleading because they do not account for differences in the public and private sector workforces. For example, workers in the public sector tend to be older and hence could be expected to have higher earnings. This study uses regression analysis to distinguish components of the wage differential that can be attributed to the public/private sector distinction. Overall, controlling for race, region, and work experience, women in the public sector are still more likely to have higher wages than their counterparts in the private sector. While non-college educated men, particularly African American and Hispanic men, also benefit from somewhat higher wages and benefits in the public sector, the effect is more pronounced for women workers. For example, women without a college degree in the public sector earn wages that are 5 to 6 percent above the earnings of their private sector counterparts.

Once union membership and occupation variables were included, however, the differences in public sector and private sector wages largely disappeared. In other words, for women who have the same occupation, union status, education, work experience, and race, the public sector does not, on average, pay better than the private sector. Unionization emerges as a central factor in understanding why the public sector pays better than the private sector.

Gender Equity in the Public and Private Sectors

While women are paid better in the public sector in an absolute sense, a gap between men’s and women’s wages remains (see Table 6). The size of the wage gap between male and female workers in public and private sector employment varies by race and educational background.

  • The gender wage gap is smaller in the public sector, especially for women of color, but this result is driven largely by education. Only women with college degrees see greater pay equity in the public sector. For less educated women, gender inequality is as great in the public sector as in the private.

The public sector is generally regarded as providing better access to professional and managerial jobs for women. When teachers are separated from other professional and managerial occupations, however, the public sector does not appear to provide greater opportunity for women to hold managerial or professional positions.

  • With the exception of teachers, women are only slightly more likely to hold managerial, technical, or other professional jobs in the public sector than in the private sector (26.8 percent and 25.3 percent, respectively).

Because women in the public sector have more education than women in the private sector, we would expect them to be well represented in managerial and professional positions. This is not the case, however. That educational wealth has not translated into greater numbers of managerial jobs for women (while it has for men) indicates the continued presence of occupational barriers for women. This report finds that the public sector does not, in general, offer exceptional opportunities for women to hold managerial and professional positions (although other research by IWPR suggests that the public sector does, in fact, offer better opportunities for women of color than the private sector).

Risks of Privatization

The second part of this research focuses on occupations — such as health care and child care workers, janitors, food preparation employees, and clerical and administrative staff — that are considered to be “at risk” for privatization. This research finds that women working in these “at risk” occupations have less education, with close to half holding a high school degree or less. Because the wage differential in the public and private sectors is largest for women without a college education, these women have the most to lose under privatization.

  • For women without college degrees, occupations “at risk” for privatization constitute 63.9 percent of their public sector jobs.
  • Even though “at risk” occupations are not generally considered exceptional job opportunities, these jobs pay better in the public sector than in the private sector.

The Upshot

From a policy standpoint, there is good reason to be concerned about the continuing call for contracting out public services to the private sector. On average, public sector jobs pay better and are more likely to include pension and health benefits. When government services are privatized, women—especially women of color and women who do not have a college education—will likely experience significant declines in how much they earn and in their health and pension coverage. Even though, the public sector is far from a perfectly fair employer—glass ceilings and the gender gap in pay and benefits persist as in the private sector—this analysis finds that privatization, and the de-unionization that frequently accompanies it, is likely to prove detrimental to the economic welfare of women workers.