The Impact of the Privatization and Expenditures on the State Employments in the US - Research Paper Example

 The impact of the privatization and expenditures on the state employments in the U.S Abstract This study investigates the impact of the privatization and state expenditures on the state employment in the US. Privatization of public services is mostly carried out in order to reduce the government’s cost of operations leading to a new source of funds for investments, transferring of operational risk, and enhancing expertise and flexibility of the private sectors. For this research, the research methodology adopted includes explanation of the research design, procedure of sampling, and the collection of data for the research carried out for analyzing the impact of state expenditures and privatization in the U.S (Featherstun, et al, 2001). The data in this research consisted of the expenditures of 33 states in the U.S. and their respective employments level in each state for 2000, 2006 and 2007 years. State employment as a dependent variable, and expenditure and privatization as independent variables were analyzed for the following three years 2000, 2006 and 2007 respectively (Brown & Weisbenner, 2009). In conclusion, Privatization is adopted by the governments in order to transfer the ownership of the management of any service or a property from the control of the public or government to the private sector. Privatization may be complete or incomplete depending on the policies of the government and the fiscal pressure on the public sector (Pappa, 2009). Introduction Privatization is the procedure of transferring the ownership of a property or management of any activity or services from the hands of the public or the government to a private owner. The privatization leads to transfer the properties and services from the public to the private sector which helps the government to increase the efficiency of operation and management of assets in a better way. The government has started to sell off or allow the lease of established assets of the public into the hands of the private sector for the purpose of cost reduction, increasing efficiency of operation, maintenance and open avenues for the source of funds required for new investments. Privatization has been the trend of the governments all over the world. The scope of privatization has not been much in the U.S. as the economy was developed as to be a free market economy. Moreover, the government has not owned several industries unlike other countries of the world. This provided little scope for the government to distribute public ownerships to the private sector. Numerous public sector services in U.S. have been privatized and outsourced which includes data processing, public safety, hospitals, residential waste collection, water storage, parking spaces, vehicle and fleet maintenance, and airport operations (Brown et al, 2009). There are various reasons that supported privatization of public services which includes the ability for completion of work within stipulated, reduction of cost of operations leading to a new source of funds for investments, transfer of operational risk, enhanced expertise and flexibility of the private sectors. However, the privatization of public services created an impact on employment in the U.S. According to the authors, “They also have adopted measures to deal with employees affected by privatization by requiring private contractors to give preferential treatment in hiring, offering enhanced severance packages or allowing an early retirement option” (Chi, Arnold & Perkins, 2002, p.476). Literature Review Privatization refers to the process in which functions and responsibilities as a whole or in a part was shifting from the government to the private sector. The three main types included in it: contracting out, asset transfer, and managed competition (Featherstun, Thornton and Correnti, 2001, p. 646). The one associated benefit of the privatization of local or state government would be to improve the performance and service level along with the emphasized on civil service protection. It comes from the immunity for performing government services. However, the issue related to privatization cannot be ignored (Featherstun, Thornton and Correnti, 2001, p. 671). Privatization is one of the most discussed topics in the modern era of public management. Traditional norms of public management are getting unclear day by day because of the increased consideration of the efficiency and effectiveness of affairs of public sector organizations. One of the ways governments adopted to increase the efficiency and effectiveness is the privatization of public services. Varner (2006) has stated that “Privatization is the process of transferring property from public ownership to private ownership and/or transferring the management of a service or activity from the government to the private sector” (Varner, 2006, p. 1). The significant contribution of Varner was that he specified the forms of privatization as “Complete Privatization, Privatization of Operations, Use of Contracts, Franchising, and Open Competition” (Varner, 2006, p. 1). In addition, he said that moves address the idea of reason what may be the causes ultimately ends up in privatizing the public entities. The provided list of seven reasons “Cost Reduction, Risk Transfer, Source of Revenue, Quality of Service, Expertise, Timeliness, Flexibility” (Varner, 2006, p. 4-6) may not be exhaustive one it has identified vary much prevalent potential causes also applicable in global scope (Cavaliere & Scabrosetti, 2008). As the United States government is considering privatization, they may face several difficult tradeoffs. Privatization is acknowledged to have significant implications particularly for the quality of, efficiency of, and accessibility of goods and services. This decision involving privatizing certain activities may have negative impact on the political support and employment conditions. Therefore, the government officials and policy makers must critically look into the potential risks and benefits of privatization. One thing which clearly comes out from the scholarly research is that privatization has a lot to do with employees. They state that the success of a privatization policy highly depends upon the level of cooperation employees demonstrate. But at the same time, the public official who are involved in the process or who have got the authority to supply organizational employees should ensure that the employees whose services after privatization would under the ownership of private sector (Zycher, 2013). Moreover, the authors have described few issues that may emerge among different layers of employees. The most important issue is the phenomenon of “bumping” (Leary & Eggers, 1993, p. 12). This refers to a situation when scenario employees exploit their position or have got the legitimacy (vested or created) to control the position and status of less senior employees (Leary & Eggers, 1993). Therefore, this may bring about inefficiencies in the labor market. Gerber, Hall & Hines (2004) prepared and published a report addressing local and state level issues with reference to privatization. Reports claimed that the government role has been increased in terms of public service over the period of time. Along with the other key social factors such as education, health, pensions, and welfare the unemployment assistance is also the responsibility of the government and public institutions (Silanes, et al, 1997). The government sector has obtained the potential to provide employment opportunities even in the periods of recession and retrenchment. Moreover, the government agencies or government owned organizations exist to serve the individuals not to earn profits (Edwards, 2009). For that matter, the simple similarity is in case of massive privatization the government’s ability to assist employees would defiantly reduce in case of crunch economic situations. It is very probable that the unemployment rate may goes up. This literature again endorses the connection of privatization with the employees and employment conditions in the U.S. (Gerber, Hall & Hines Jr 2004). Fernandez, Smith & Wenger (2005) have stated that, it was the era of 80s and 90s when America proposed its self as a champion in the reduction of the public sector while contracting the public entities out and coming up with the retrenchment strategies throughout the country. It has been claimed that More than 80 percent of American cities currently use some forms of privatization. This is not ordinary to consider when a certain policy phenomenon applies to large scale. It defiantly creates an impact on the working of the economy and overall country’s economic layout (Gerber, et. al, 2004). Therefore, the issue of unemployment and rate of employed people is an imperative. In addition, they have a specific connection with the country’s overall strategic economic positioning. Hence, the conclusive argument is the affairs that are dominated in the national economic shapers privatization have its specific impact on micro or distinctive elements of economic concern. Moreover, their results provide interesting dimensions of employment. They have concluded that the contracting has increased the part time employment. On the other hand, full time employment has reduced to a significant extent. But similarly, the point that may confuse us is the increase in contracting with private and non-profit providers made "no impact on full and part-time employment" (Fernandez, Smith & Wenger, 2005, p. 2). Warner & Hebdon (2001) have taken up a different issue. Prior to examining the privatization’s impact, they have addressed the primary question that privatization is the only solution to have structural reforms in the public sector organization and governments looking for this purpose. But in reality it is not the case. These are the public sector institutions which manage the public sector organizations. One claimed made by the authors which are very strange to consider that political factors are not significant in the restructuring process "and unionization is only significant in cases of simple restructuring (privatization or cooperation used alone)" (Warner & Hebdon, 2001, p. 315). Moreover, they asserted that the primary purpose of this option is not fiscal stress rather, but these" debt limits are associated with more complex forms of restructuring" (Warner & Hebdon, 2001, p. 315). Hence, it is clear that privatization is a result of the intention or a considered tool for restructuring the organization. Restructuring requires having a capacity of risk taking, and it is more common among experienced local officials in higher income communities (Warner & Hebdon, 2001). The restructuring process either decreases or increases management positions within an organization in order to accommodate any market shifts or trends. Therefore, from the above mentioned literatures it can be inferred that there is a significant relationship between the privatization, state expenditures, and state employments. This paper would evaluate the relationship between the privatization, state expenditures, and state employments. In addition, it will analyze the strength related to each variable in the equation (Horwitz, 2012). Research Objective The objective of the paper is to evaluate the relationship between the state employments, state expenditures, and privatization. In this case, the paper will analyze the impact of state expenditures and privatization on the state employments in the U.S. The evaluation process will involve the trend of expenditures of state employments and privatization process of 2000, 2006, and 2007 in the United States. State employments measures percentage of state population and expenditures of each state per capita dollar in each year: 2000, 2006 and 2007. A total of 33 states in the U.S. were selected for the analysis in order to evaluate the impact of privatization and expenditures on employment of each state in the U.S (Gali &Valles, 2004). Research Design The research has been done based on the study of samples that consisted of collecting data from government sources and publications. This research conducted on the impact of the state expenditures and privatization on the state employments in the U.S. The data in this research consisted of the expenditures of 33 states in the U.S. and their respective employments level in each state for 2000, 2006 and 2007 years (Shoag, n.d). The figures and tables of expenditures and state employments have been taken from the records and subsequently used in the data analysis. A data analysis was conducted with the help of these data, and research findings that would be based on it. Based on these findings, the hypotheses for the research have been tested to find a conclusion on the impact of the privatization and state expenditures on the state employments in the U.S. Total 3 variables were selected for analyzing the Impact of state expenditures and privatization on the state employments in U.S ( Lopez-de-Silanes et al, 1997). Data of research Study The processed data used for the research study on the Impact of expenditures on the state employments in U.S for three years 2000, 2006 and 2007 (Appendix I). Total 33 states data were collected in order to view the trend of the state employments with respect of expenditures (O'Leary & Eggers, 1993). The presented data for the state employments noted in 1,000 terms whereas the state expenditures measure per capita dollars (Appendix I). The status of privatization has been marked in terms of numbers “0” and ”1” which have individual significance. The states marked with “0” on privatization denote that the privatization has decreased or stayed the same during the specific time period. Whereas the states marked with “1” presented that the privatization has increased during the specific time period (Lopez-de-Silanes et al, 1997). Data Analysis A total of three regression models were developed for state employment with the independent variable expenditure. In this case, State employment is used as a dependent variable, and expenditure and privatization are used as independent variables for the years 2000, 2006 and 2007 respectively (Chi & Perkins, 2002). This is evident in the following tables of analysis. 2000 Regression Statistics Multiple R 0.050211 R Square 0.002521 Adjusted R Square -0.06398 Standard Error 52.91187 Observations 33 ANOVA   df SS MS F Significance F Regression 2 212.2855 106.1428 0.037913 0.962843 Residual 30 83989.98 2799.666 Total 32 84202.26         Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 77.82628 38.55377 2.018643 0.052541 -0.91101 156.5636 -0.91101 156.5636 Expenditures -0.00048 0.006831 -0.0707 0.94411 -0.01443 0.013467 -0.01443 0.013467 Privatization -5.00562 19.73152 -0.25369 0.801469 -45.3028 35.29153 -45.3028 35.29153 2006 SUMMARY OUTPUT Regression Statistics Multiple R 0.095018 R Square 0.009028 Adjusted R Square -0.05704 Standard Error 54.34782 Observations 33 ANOVA   df SS MS F Significance F Regression 2 807.2985 403.6492 0.13666 0.872807068 Residual 30 88610.57 2953.686 Total 32 89417.86         Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 62.62878 47.54065 1.317373 0.197687 -34.46218147 159.7197 -34.4622 159.7197 Expenditures 0.001154 0.006037 0.1912 0.849657 -0.01117417 0.013483 -0.01117 0.013483 Privitization 9.95671 19.32769 0.515153 0.610222 -29.5157078 49.42913 -29.5157 49.42913 2007 SUMMARY OUTPUT Regression Statistics Multiple R 0.104189 R Square 0.010855 Adjusted R Square -0.05509 Standard Error 54.62058 Observations 33 ANOVA   df SS MS F Significance F Regression 2 982.2497 491.1248 0.164619 0.848977995 Residual 30 89502.22 2983.407 Total 32 90484.47         Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 64.39155 45.92541 1.40209 0.171151 -29.40065831 158.1838 -29.4007 158.1838 Expenditures 0.000881 0.005463 0.161219 0.873002 -0.010276416 0.012038 -0.01028 0.012038 Privatization 11.16538 19.49879 0.572619 0.57117 -28.65645379 50.98721 -28.6565 50.98721 From the tables above, it is evident that the state expenditure has no significant relationship with state employment in 2000. This is due to the greater of p-value such that an individual cannot reject the null hypothesis. That implies that there is a negative relationship between the two variables: or state employment and state expenditure has insignificant relationship in the U.S. in 2000 (Butz, 2011). At the same time, the state expenditure has no significant relationship with state employment in 2006. This is due to the greater value of p-value, as a result, individual do not reject the null hypothesis leading to insignificant relationship between the two variables which are the state employment and privatization in the U.S. in 2006 (Blanchard & Perotti, 2002). Summary and Recommendations In conclusion, it is evident that privatization is adopted by the governments to transfer the rights of management of any service or a property from the public domain to the private sector. Privatization may be complete or incomplete depending on the policies of the government and the fiscal pressure on the public sector. Privatization on one hand, leads to the reduction of employment opportunities. On the other hand, it reduces cost of operation through improved level of efficiency and timely execution of services. The paper concludes that there is insignificant relationship between state expenditure and state employment in the U.S. in the following years 2000, 2006 and 2007. According to the research findings, it is evident that privatization of public services has an impact on the state employments in the U.S. On the other hand, there is no relationship between privatization of public services and state employment of public sector in the U.S. during 2000, 2006 and 2007 years. References Blanchard, O and Perotti, R (2002). An empirical characterization of the dynamic effects of change in government spending and taxes on output. Quarterly Journal of economics, vol 117 (4), pp: 1329-1368 retrieved from Brown, J.R, Pollet, J and Weisbenner, M.S, (2009). The investment behavior of State pension plans. Retrieved on 17th December 2013 from Butz,, A. (2011). Privatization and Employment in the Implementation of Temporary Assistance for Needy Families (TANF): A Multi-Level Analysis. U.S. Department of Labor (DOL), Retrieved ON 17TH December 2013 from: wdr.doleta.gov/research/FullText_Documents/ETAOP_2011-08.pdf ‎ Cavaliere, A and Scabrosetti, S (2008). Privatization and efficiency: from principle and agents to political economy. Journal of economic survey, doi: 10.1111/j.1467-6419.2007.00546.x Retrieved on 17th December 2013 from < http://economia.unipv.it/eco-pol/PaperSeminari/cavaliere_privatizationDefinitivoJOES.pdf> Chi, K. S., Arnold, K. A. and Perkins, H. M. (2002). Privatization in State Government: Trends and Issues. Retrieved on 17th December 2013 from: http://knowledgecenter.csg.org/drupal/content/privatization- state-government-trends-and-issues. Edwards, C (2009). Downsizing the federal government, privatization. CATO Institute. Retrieved on 17th December 2013 from Read More