An Overlooked Cost of Contracting Out: Evidence From Employee Turnover Intention in U.S. Federal Agencies

Abstract

Contracting out has long been used in all levels of government in the United States, with federal contract spending increasing 8% to 9% annually since 2015. The literature on contracting out has examined the impact of this practice on the work-related attitudes and motivation of public employees who have transitioned to work for private contractors. However, we understand very little about the effects of contracting out on the overwhelming number of public employees who are not displaced. Given the importance of work-related attitudes and turnover for organizations, this study explores the potential consequences of contracting out for employee turnover intention over a period of several years. The results of panel data analyses suggest that an increase in contracting activity in federal agencies increases the employee turnover intention rate. Contracting out also impacts employee turnover intention indirectly through its influence on job satisfaction.