The Effects of Fixed-Route Transit Service Contracting on Labor

After a half-century of increasing public ownership and rising costs, public transit agencies in the U.S. began to experiment with competitive contracting of their operations during the 1980s. Previous research tells us much about possible cost savings from contracting, but we know relatively little about how it has affected transit workers. This study examined impacts of contracting out fixed-route bus services on labor by investigating the compensation packages of drivers. The study covers 12 operators of three types, from 1995 to 2001: private contractors, public operators with no contracting, and public operators who contracted out for some or all of their service. Driver compensation at each bus operator was analyzed in four components using equivalent pay hours: platform hours, hours spent due to work rules defined in labor contracts, paid absences, and fringe benefits. By comparing pay hours to platform hours, labor utilization of each operator was examined. Drivers for five private bus contractors were paid about $10 to $11 per hour (in 2001 dollars), which is $6 to $8 less than drivers at seven public agencies. Privately hired drivers are likely to receive fewer benefits, valued at only 25% of their yearly compensation, compared to 35% for public drivers. Paid absences showed especially notable differences. Privately hired drivers received the dollar equivalent of 15 days off annually versus 52 days off for their public counterparts. Private operators showed higher levels of spending on overtime, because their drivers were each likely to work 100 to 200 hours more per year than their public counterparts in order to achieve marginal wage improvements. Also the higher rate of driver turnover and poor safety records at private operators caused more spending on various forms of insurance (e.g. unemployment, worker’s compensation insurance, and liability). Driver training also costs private contractors more than public ones. Overall, private contractors paid 52% less in driver compensation, while their hourly operating costs were 43% less. In sum, it appears that cost savings from contracting achieved at the expense of labor, but not necessarily with an increase in genuine productivity.