Outsourcing comes with potential negative employee-related social costs since private sector organizations are not obliged to uphold public personnel regulations. In response, some local governments specify contract rules safeguarding outsourced employees. To understand why, we combine literature on outsourced employees and incomplete contracts. We hypothesize that employee safeguards are a function of local governments’ political interests, fiscal capacity, and priority of contract price. Collaborating with purchasing practitioners, we develop a safeguard catalog and determine the use of safeguards in a unique dataset of 3,396 documents related to 247 Danish tenders involving the transfers of employees from public to private employment. We find that local governments with less fiscal capacity and more price orientation include fewer safeguards. These findings signal that certain local governments have more willingness and capacity to safeguard employees and thus potentially decrease unaccounted employee-related social costs of outsourcing.
AlbalateD.BelG.González-GómezF.Hernández-GutiérrezJ. C.Picazo-TadeoA. J. (2024). Changing prices after the reform of local public services: Remunicipalization versus privatization. Journal of Regulatory Economics, 65(1), 1–26. https://doi.org/10.1007/s11149-024-09472-7
2.
AliA. J.VermaM.HamdanR. (2024). Impact of outsourcing on employees of government entities. In Achieving sustainable business through AI, technology education and computer science (pp. 597–606). Springer. https://doi.org/10.1007/978-3-031-70855-8_51
3.
Arbejdstilsynet. (2002). Udarbejdelse af udbudsmateriale ved afhentning af dagrenovation [Preparation of tender materials for pick-up of everyday refuse].
4.
ArrowsmithS.KunzlikP. (Eds.). (2009). Social and environmental policies in EC procurement law: New directives and new directions. Cambridge University Press.
5.
BelG.ElstonT. (2024). Disentangling the separate and combined effects of privatization and cooperation on local government service delivery. Public Administration, 102(4), 1624–1646. https://doi.org/10.1111/padm.12992
6.
BelG.FagedaX. (2007). Why do local governments privatise public services? A survey of empirical studies. Local Government Studies, 33(4), 517–534.
7.
BelG.FagedaX.WarnerM. E. (2010). Is private production of public services cheaper than public production? A meta-regression analysis of solid waste and water services. Journal of Policy Analysis and Management, 29(3), 553-577.
8.
BhattiY.OlsenA. L.PedersenL. H. (2009). The effects of administrative professionals on contracting out. Governance, 22(1), 121–37. 10.1111/j.1468-0491.2008.01424.x.
9.
BhattiY.AndersenL. B.PetersenO. H.HoulbergK. (2017). Konsekvenser af udlicitering for medarbejdere som skifter fra offentlig til privat ansaettelse-En registerbaseret analyse [Consequences of outsourcing for employees who switch from public to private employment: A registry-based analysis]. Roskilde University. https://www.vive.dk/media/pure/8784/2038639
10.
BirdS.KleinE.LoperE. (2009). Natural language processing with Python. O’Reilly Media.
11.
BrownT. L.PotoskiM. (2003a). Transaction costs and institutional explanations for government service production decisions. Journal of Public Administration Research and Theory, 13(4), 441–468. https://doi.org/10.1093/jopart/mug030
12.
BrownT. L.PotoskiM. (2003b). Contract-management capacity in municipal and county governments. Public Administration Review, 63(2), 153–164.
13.
BrownT. L.PotoskiM.SlykeD. M. (2016). Managing complex contracts: A theoretical approach. Journal of Public Administration Research and Theory, 26(2), 294–308.
14.
BusckO. G. (2007). Arbejdsmiljøet ved udbud af renovationsarbejde: Demonstrationsprojekt for indarbejdelse og efterlevelse af arbejdsmiljøkrav ved udbud og udførelse af renovationsopgaver [The working environment and contracting of refuse collection: Best practice in incorporation and fulfilment of health and safety considerations by contracting and carrying out refuse collection services]. Aalborg University.
15.
CasadyC. B.PetersenO. H.BrogaardL. (2023). Public procurement failure: The role of transaction costs and government capacity in procurement cancellations.Public Management Review, 25, 1–28.
16.
ChristoffersenH.PaldamM. (2001). Kommuner og konkurrence [Municipalities and Competition]. In NorstrandR.GroesN. (Eds.), Kommunestyrets Fremtid [The future of the municipal government].
17.
CoaseR. H. (1960). The problem of social cost. Journal of Law and Economics, 3, 1–44.
18.
CunhaR. C.CooperC. L. (2002). Does privatization affect corporate culture and employee wellbeing?Journal of Managerial Psychology, 17(1), 21–49. https://doi.org/10.1108/02683940210415915
19.
DombergerS.JensenP. (1997). Contracting out by the public sector: Theory, evidence, prospects. Oxford Review of Economic Policy, 13(4), 67–78.
20.
EjersboN.GreveC. (2002). Den offentlige sektor på kontrakt [The public sector on contract]. Børsen.
21.
ElinderM.JordahlH. (2013). Political preferences and public sector outsourcing. European Journal of Political Economy, 30, 43–57.
22.
FernandezS.SmithC. R. (2005). Looking for evidence of public employee opposition to privatization: An empirical study with implications for practice. Review of Public Personnel Administration, 26(4), 356–381. https://doi.org/10.1177/0734371X05281629
23.
FernandezS.SmithC. R.WengerJ. B. (2010). Employment, privatization, and managerial choice: Does contracting out reduce public sector employment?Journal of Policy Analysis and Management, 26, 55–77.
24.
FurlottiM. (2007). There is more to contracts than incompleteness: A review and assessment of empirical research on inter-firm contract design. Journal of Management and Governance, 11. 61–99.
25.
GrimshawD.JohnsonM.KeizerA.RuberyJ. (2016). Reducing precarious work in Europe through social dialogue: The case of the UK. (Report VP/2014/004).
26.
HansenG. E. (2025). Why is outsourcing good for some employees and bad for others? How demands and resources moderate the outcome. Review of Public Personnel Administration, 45(2), 285–308. https://doi.org/10.1177/0734371X231214967
27.
HansenG. E.BelG.PetersenO. H. (2023). The unequal distribution of consequences of contracting out: Female, low-skilled, and young workers pay the highest price. Journal of Public Administration Research and Theory, 33(3), 434–452. https://doi.org/10.1093/jopart/muac041
28.
HaqueM. S. (1996). The intellectual crisis in public administration in the current epoch of privatization. Administration & Society, 27(4), 510–536.
29.
HartO.ShleiferA.VishnyR. W. (1997). The proper scope of government: Theory and an application to prisons. Quarterly Journal of Economics, 112(4), 1127–1161. https://doi.org/10.1162/003355300555448
30.
HartO.MooreJ. (1999). Foundations of incomplete contracts. The Review of Economic Studies, 66(1), 115–138.
31.
HebdonR. (2006). Contracting public services in New York State labour effects. Relations Industrielles, 61(3). https://doi.org/10.7202/014188ar
32.
HefetzA.WarnerM. E. (2004). Privatization and its reverse: Explaining the dynamics of the government contracting process. Journal of Public Administration Research and Theory, 14(2), 171–190.
33.
HefetzA.WarnerM. E. (2012). Contracting or public delivery? The importance of service, market, and management characteristics. Journal of Public Administration Research and Theory, 22(2), 289–317. https://doi.org/10.1093/jopart/mur006
34.
HoodC. (2010). The blame game. Princeton University Press.
35.
HodgeG. A. (2000). Privatization: An international review of performance. Westview Press.
36.
HolleyS.MachonachieG.GoodwinM. (2015). Government procurement contracts and labour standards enforcement: Rhetoric, duplication and distraction?Economic and Labour Relations Review, 26(1), 43–59.
JacksonC. Y. (1997). Strategies for managing tensions between public employment and private service delivery. Public Productivity and Management Review, 21(2), 119–136.
39.
JaehrlingK.JohnsonM.LarsenT. P.RefslundB.GrimshawD. (2018). Tackling precarious work in public supply chains: A comparison of local government procurement policies in Denmark, Germany and the UK. Work, Employment and Society, 32(3), 546–563. https://doi.org/10.1177/0950017018758216
40.
JensenP. H.StonecashR. E. (2005). Incentives and the efficiency of public sector—Outsourcing contracts. Journal of Economic Surveys, 19(5), 767–787. https://doi.org/10.1111/j.0950-0804.2005.00267.x
41.
KavanaghIParkerD. (2000). Managing the contract: A transaction cost analysis of externalisation. Local Government Studies, 26(4), 1–22. https://doi.org/10.1080/03003930008434005
LeeS.LeeG. R. (2021). Does outsourcing reduce employee job satisfaction? A test of new public management orthodoxy. Asia Pacific Journal of Public Administration, 43(1), 47–61. https://doi.org/10.1080/23276665.2020.1801475
44.
LindholstA. C. (2012). Fire gode råd om virksomhedsoverdragelse: en undersøgelse af medarbejderens perspektiv [Four tips on business transfer: An employee perspective study]. Forest and Landscape, University of Copenhagen.
45.
LindholstA. C. (2015). Samarbejdets betydning i den klassiske udlicitering: en analyse af de transaktionelle og relationelle dimensioners betydning [The importance of cooperation in classical outsourcing: An analysis of the importance of the transactional and relational dimensions]. Politica, 47(4), 522–540.
46.
McChellandA. (2000). Effects of unemployment on the family. The Economic and Labour Relations Review, 11(2). 198–212.
47.
NuppenauC. (2008). Marketizing municipal park management organisations in Denmark. PhD dissertation). Forest and Landscape, University of Copenhagen.
PetersenO. H.AndersenL. B.BhattiY.HoulbergK. (2022). Competition, ownership, and the impact of government outsourcing on employees. Journal of Public Administration Research and Theory, 32(2), 398–415. https://doi.org/10.1093/jopart/muab032
50.
PetersenO. H.BaekkeskovE.PotoskiM.BrownT. L. (2019). Measuring and managing ex ante transaction costs in public sector contracting. Public Administration Review, 79(5), 641–650. doi: 10.1111/puar.13048
51.
PetersenO. H.HjelmarU.VrangbækK. (2018). Is contracting out of public services still the great panacea? A systematic review of studies on economic and quality effects from 2000 to 2014. Social Policy & Administration, 52(1), 130–157.
52.
PotterR. A. (2022). Macro outsourcing: Evaluating government reliance on the private sector.The Journal of Politics, 84(2), 961–974. https://doi.org/10.1086/716295
53.
QuigginJ. (2002). Contracting out: Promise and performance. The Economic and Labour Relations Review, 13(1), 88–104.
54.
RobinsonS. E.MeierK. J. (2006). Path dependence and organizational behavior: Bureaucracy and social promotion. The American Review of Public Administration, 36(3), 241–260. https://doi.org/10.1177/0275074006288299
55.
Schaumburg-MüllerP.WerlauffE. (2011). Udlicitering og medarbejdere: Ret og pligt i forhold til lønmodtagere ved offentlig udlicitering og privat outsourcing [Outsourcing and Employees: Rights and Duties in Relation to Employees in Public Outsourcing and Private Outsourcing]. Djøf Publishing.
56.
SclarE. D. (2000). You don’t always get what you pay for: The economics of privatization. Cornell University Press.
57.
Van SlykeD. M. (2003). The mythology of privatization in contracting for social services. Public Administration Review, 63(3), 296–315.
58.
VrangbækK.PetersenO. H.HjelmarU. (2015). Is contracting out good or bad for employees? A review of international experience. Review of Public Personnel Administration, 35(1), 3–23. https://doi.org/10.1177/0734371X13511087
59.
WisniewskiS. C. (1991). Analyzing the contracting-out of government services: Relevant cost-benefit considerations. Public Budgeting and Finance, 11, 95–107.
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
