I really don't think they do it to save money. Reality TV shows and Contest shows MAKE mad money...
I think they pick regular, everyday people, so we (the viewers) can relate to them.
ALSO - so we will VOTE for the ones we like, or the ones who came from our Location.
Most of these shows have some kind of "viewer voting" polls or winner predictions. A LOT of people are paying 99c to call in or text their votes.
Think about American Idol, when they say something like this on every episode: "after over 40 million votes" - well, that 40 million votes in 2 hours! That equals... a LOT of MOOLAH !!!