Hiring or contracting

There’s a debate today about how people work. There seems to be an increase in contracting out, where a company doesn’t hire a person as an employee but hires the person to do a specific task. The worry is that workers hired as contractors lose the benefits that come with being an employee. Is there a solution? NC State University economist Mike Walden answers.

“Well, this debate is actually not new. In fact, there was an economist, Ronald Coase, who actually won a Nobel Prize a few years ago for analyzing why some companies hire permanent employees versus contracting work out. And what Coase concluded was it depends on how much the company needs to control the quality of the work. Where supervision is needed — where the company has to directly supervise the workers to make sure they actually do the work — then the company is going to go ahead and hire them as full-time workers. But where they don’t really need to supervise those workers — where they can really depend on the worker doing the work without supervision — then they’ll contract out. And I think we are seeing more of that today, where companies will decide, ‘You know, we can depend on people doing that work, so we don’t have to hire them on a full-time basis.’

“Now in terms of pay, there’s also been some research to suggest that if a full-time worker does get benefits, that will actually be reflected in lower take-home pay for them. So there’s a trade off: You either get benefits, or you either get cash. Now to the extent that that does work and indeed that’s the case, that means that contracting out, those people who don’t get those benefits won’t actually lose out. So there’s a little more to this discussion than I think the headline suggests.”