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IZA World of Labor

Public Sector Outsourcing

Journal Article
Poutvaara, Panu and Henrik Jordahl (2020). “Public Sector Outsourcing”. IZA World of Labor 65, 1–11.

Panu Poutvaara, Henrik Jordahl

The decision to outsource public provision of services is multifaceted and context dependent. Doing so tends to lower labor intensity and increase its efficiency. Costs are usually lower, but quality problems can affect services like health care, though consumer choice has stimulated innovation and quality in both education and health care. Natural monopolies are less suitable for outsourcing, while network services (public transportation) may be outsourced through public tenders. Though some jobs may be lost in the short term, the long-term effects are generally positive for a wide variety of activities.