Title

Contingent Employment in British Establishments: Organizational Determinants of the Use of Fixed-Term Hires and Part-Time Workers

Publication Date

3-1-1998

Abstract

In the 1970s the use of short-term workers to fill permanent positions temporarily was an infrequent practice. By the mid-1980's, the trend was to replace permanent jobs with temporary ones indefinitely (Pfeffer & Baron 1988). As a result, one out of every four workers in the U.S. is presently a part-time or temporary employee; and temporary workers comprise one of the fastest growing labor force segments (Fortune 1994; Plunkert & Hayghe 1995). From 1982 to 1984, the number of new temporary workers increased 70 percent in industries with 50,000 or more employees (Carey & Hazelbaker 1986). Similar changes occurred in other industrialized nations. Contingent workers constitute 30% of the European labor force (Belous 1989). In Britain, for example, the use of temporary workers rose 2.5% a year between 1983 and 1987 for all major public and private industries (Hunter, McGregor, MacInnes & Sproull 1993). The growth in part-time employment has also been substantial, such that part-time employees now constitute about 20% and 27.3% of the US and British workforces respectively (O'Reilly 1994; Tilly 1991). Current arguments explain the use of contingent work arrangements by focusing primarily on the advantages contingent workers provide in terms of flexible staffing arrangements, expertise, and presumed labor cost savings. According to these arguments, contingent workers provide numerical flexibility, enabling firms to adjust staffing levels to uncertain market demands more easily than permanent employees who expect stable employment (Atkinson 1984; Atkinson & Meager 1986) or who are subject to bureaucratic policies and federal regulations that limit their hiring and firing (Abraham 1990). Contingent workers also add functional flexibility to a firm's employment system by contributing expertise that is costly to develop in-house or maintain if used only sporadically by the firm (Christensen 1991). Finally, contingent workers may lower payroll costs by economizing on fringe benefits and unemployment insurance costs, thus providing the firm with a direct means for adjusting its variable costs relative to its competitors (Osterman 1987). Although much less researched, this shift in work arrangements also reflects key changes in the relationship between organization design and employment systems that can enhance flexibility (Pfeffer 1994). How trends toward corporate restructuring, the adoption of new work technology, and job reorganization contribute to the spread of alternative work arrangements raises important questions about how and why organizations adopt flexible work practices, in addition to informing the basic questions about how the spread of contingent work critically affects labor inequality (Smith 1997). Research in this area indicates that a focus on costs and product market uncertainty may be too narrow. A more balanced explanation of the adoption of alternative work arrangements requires that organizational-level factors be addressed. Tilly's findings (1992:331), for example, suggest that "Behind the averages . . . fascinating glimpses of diversity emerge." He reports that workflow interdependence among jobs reduces the use of temporary workers because the turnover of temporary workers disrupts transactions between interconnected jobs. He found that job and organizational characteristics moderate the relationship between fringe benefits costs and the use of contingent workers, suggesting that structural constraints augment or diminish the potential cost savings to the firm provided by contingent workers. Approaches that focus on labor costs and fluctuating market conditions, moreover, demote the effects that key actors, such as unions, have on externalization, providing an incomplete explanation of the influence of these important organizational factors (Davis-Blake & Uzzi 1993). This research suggests that a focus on the role internal organizational structure plays in regulating the use of contingent workers can help clarify how changes in organization design are linked to shifts in the employment arrangement. Osterman (1987), for instance, has argued that technology has a primary effect on the organization's choice of employment systems. He asserted the organization is more likely to use flexible labor systems where production processes can be distributed or "put-out" using micro-computers or other job technology that adjust the volume of output or smooth interruptions in process. Similarly, a firm's choice of employment systems is constrained by its "social technology" - the managerial and bureaucratic procedures which presumably enable a firm to minimize the risk of low-quality performance by temporary workers who have little commitment to the organization and experience few, if any, opportunities for mobility within the firm. Finally, by attending to organizational structure and change, research is potentially sensitized to new and important patterns underlying the shift to "flexible" employment arrangements (Smith 1997). Although temporary workers are associated with lower recruiting, insurance, and fringe benefit costs than permanent workers, their use may result in "hidden costs." These costs arise because a relatively large and expensive governance structure is required to monitor the output of temporary workers or resolve conflict and coordination problems between them and permanent workers (Geary 1992; Graham 1995; Hunter et al. 1993; Smith 1994; Thomas 1994). Consequently, an examination of the determinants of the use of contingent workers is likely to benefit from a fuller analysis of how organizational structures and strategic human resources practices facilitate or inhibit the use of various types of employment systems (Pfeffer 1994). The main perspective on the effect of organizational-level factors on changes in the employment relationship is internal labor market theory (ILM). ILM theory is an amalgam of economic, sociological, and technical arguments which explore the manner in which certain organizational conditions and institutional arrangements shape employment arrangements in the firm (Baron 1984). It argues that firms attempt to optimize the fit between types of workers and the demands of the environment through the use of particular job arrangements. In bridging the needs between the firm and its environment, job arrangements perform several functions, such as socializing, training, and monitoring workers; directing interlinked workflows; rewarding performance; and reducing transaction costs (Collins 1979; DiPrete 1987; Edwards 1979; Williamson 1985). According to ILM theory, organizations use employment structures strategically to lower costs, control labor, and smooth the flow of resource exchanges between the firm and its constituencies (Baron, Dobbin & Jennings 1986). While firms would like to increase their cost savings and decrease their dependence on others, all else being equal, their organizational characteristics and employment structures either facilitate or constrain their ability to capitalize on the range of alternatives available for adoption (Pfeffer & Baron 1988). This approach is consistent both with the contemporary literature on externalization (Pfeffer 1994; Smith 1997) and Baron and Bielby's (1980) "new structuralists" argument which holds that much of the variance in the organization of employment arrangements is at the level of the firm or establishment. We borrow ILM arguments, as well as arguments and findings (both qualitative and quantitative) from the flexible employment literature, to specify hypotheses about the relationship between organizational characteristics and the use of contingent employment arrangements. based on prior research, our analysis examines the principle organizational factors affecting the use of different employment arrangements. Specifically, we focus on: organizational size; labor relations and collective action; organizational governance structures; the organization and design of jobs; job technology; and labor supply and demand. There are several definitions of contingent work, which includes part-time, temporary, and independent or fixed-term contract work (Kalleberg & Schmidt 1997). All these perspectives, however, view contingent work as comprised of jobs that implicitly and explicitly enjoy few of the benefits generally associated with standard, full-time positions (i.e., job security based on merit, opportunities for career advancement, and fringe benefits). Contingent jobs, moreover, vary in their degree of externalization to the firm which can occur in terms of: (1) place (e.g., freelancing and homework), (2) administrative control (e.g., agency temporary workers and independent contractors), or (3) employment duration (e.g., part-time and temporary workers) (Callaghan & Hartmann 1991; Pfeffer & Baron 1988; Parker 1994; Smith 1997). Consistent with the above definitions, we focus on two types of contingent workers - fixed-term contractors and part time workers - both of which are contained in our data and which possess the core analytical properties discussed above in the following ways. First, contractors and part-timers are externalized in terms of either administrative control or employment duration. Second, they are primarily hired by employers because they provide staffing flexibility and direct payroll cost saving benefits relative to full-time workers (Abraham 1988; O'Reilly 1994; Tilly 1991). Third, contractors and part-time workers lack the legal right to the job-related health insurance, vacation, and retirement benefits to which permanent worker are typically entitled (Levine 1987; Ronen 1984; Tilly 1992). Lastly, both groups have traditionally lacked formal unionization or advanced skills. Consequently, the working conditions and bargaining power within firms characteristic of these groups are similar. These analytical commonalities between fixed-term contractors and part-time workers permit us to examine how similar features across different types of contingent workers respond to the same organizational characteristics. Fixed-term hires and part-timers also vary in regard to some criteria that define contingent work - providing the potential for insights not yet explored in the flexible employment literature. In particular, they differ in the degree to which their administrative control and employment duration are externalized. First, contractors, normally have full administrative control over their work assignments, and are therefore accountable to the firm for the quality and timing of their output rather than for the process by which that outcome is produced. Part-time workers, in contrast, normally fall under the full administrative control of the firm. Second, contractors and part-timers can hold different types of jobs or have different skill sets. Contractors are typically hired for a specified assignment and substituted for an entire permanent job or a series of related permanent jobs. Part-timers, on the other hand, are generally hired according to the hours worked per week(1) and tend to perform the subcomponents of full-time, permanent jobs which can be segmented into discrete tasks (Tilly 1992). Third, although contract and part-time work is typically low-skilled, contract work also includes work that demands high, standardized skills such as accounting, nursing, or engineering, particularly when an employer needs access to specialized expertise or services that are only periodically required. Most part-time jobs, on the other hand, are low-skilled and tend to be dominated in the US and UK by women, minorities, and the young (ages 16 to 22) and the elderly (ages 65 and over) (Belous 1989; Walby 1989; Jensen 1989; Callaghan & Hartmann 1991; Kalleberg & Schmidt 1997). Finally, part-time employees have historically been the favored alternative to permanent workers. This contrasts with the increasing use of fixed-term contractors to replace permanent workers in recent years (Jacobs & Qian 1996; Smith 1997). Given the commonalities and differences inherent in contingent work arrangements, our approach is to hypothesize how the known commonalities of contract and part-time contingent work arrangements impact the adoption and intensity of the use of externalized work practices. This approach to the study of contingent work should shed light not only on the organizational-level factors that affect adoption of alternative work arrangements, but also suggest how secondary dissimilarities may potentially affect the use of different types of contingent workers. Our analysis uses a random sample of about 2000 UK establishments in the private and public sectors. In addition to being an important context in its own right, the British context helps expand our store of comparative research on the employment relationship. First, in contrast to the US, the length of continuous service with an employer determines employment rights regardless of temporary or permanent status in the UK (O'Reilly 1994). Until March 1994, part-timers working less than sixteen hours per week had to work for the same employer for five years before they were entitled to employment protection whereas full-time and contract workers were eligible after two years of continuous employment (O'Reilly 1994). Second, part-time employees may be especially attractive to UK employers because state welfare policies provide for lower national insurance costs and other health benefits for these workers than they do for contractors (Hakim 1987; Hart 1990). Lastly, while part-timers' share of total employment in the two nations is comparable - 19.1% in the US and 24.6% in the UK in 1990 - growth in the British temporary employment sector has been more moderate than in the American sector. Between 1980 and 1991, temporary employment in the US increased 225 percent from 400,000 to 1.3 million (Kalleberg & Schmidt 1997). In the UK, it rose by 2.5 percentage points a year between 1983 and 1987 and increased 30.2 percent between 1990 and 1995 (Hunter et al. 1993; European Industrial Relations Review 1996). Despite these differences, however, the British context is instructive because many of the organization, market, and regulatory forces at work in the U.K. during the 1980s paralleled similar occurrences in other industrialized nations, including the US. As in the US, changes in labor law, relatively high unemployment, and more intense global competition, favored managerial initiatives to cut labor costs, weaken unionization, and adopt flexible employment arrangements (Lee 1989). While U.S. employers effected the decline of unions with little legislative help (President Reagan's brinkmanship with the air traffic controllers aside), British employers relied on across-the-board regulatory changes to shift the power over work arrangements from employees to employers (Davies 1994; Summers 1992). The previous rights of workers and unions to protest disputes peacefully was narrowed; strikers who took part in unofficial industrial action lost protection against dismissal under the new laws. Companies also centralized their collective bargaining efforts, withdrawing from the multi-employer, industry level bargaining process to focus solely on establishment-level bargaining and decentralized organization design. …

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Social Forces

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