Shedding New Light on Contract Employment in the U.S.

Hear the word “employee,” and chances are you think of someone who works for one particular employer. However, some workers today are employed by one organization that issues their paychecks but actually perform their day-to-day work for another organization or set of organizations.  These contract employees include both temporary workers as well as workers on longer-term assignments through staffing firms—and new research by MIT Sloan Professor Paul Osterman finds that contract employees now make up more than one in ten U.S. workers. That’s a much higher percentage than some previous estimates suggested.

According to Osterman, who is the NTU Professor of Human Resources and Management at the MIT Sloan School of Management, the contract workforce in the U.S. is poorly defined and often mismeasured. Osterman, who is a member of the faculty of the MIT Institute for Work and Employment Research (IWER), set out to address that using a nationally representative sample of workers and a careful series of questions designed to measure nonstandard work arrangements, including contract employment. In an article published in the March 2023 issue of the journal ILR Review, Osterman estimates that 10.8% of U.S. employees are contract company employees.

This contract workforce, Osterman notes, includes a wide range of workers—from highly paid specialists who supplement a company’s regular workforce during a busy period to low-paid security guards and janitors who work in the buildings of organizations that do not employ them. But overall, his new research shows, contract company employees earn less than comparable employees in standard employment relationships. They are also more likely to be younger, to have less education, and to be Black or Hispanic. Contract workers, Osterman finds, also receive less company-provided training than comparable workers in standard employment relationships. On average, “contract company employees are worse off than standard employees at the work site on all dimensions” studied in this research,  Osterman observes.

Osterman points out that there are currently discussions about public policy related to non-standard work arrangements like contract employment, such as the need for portable benefits for workers who move between temporary jobs and what host companies’ responsibility should be regarding contract employees who work on their site.  Resolving these issues is complicated because of the diversity of contract work, Osterman notes. However, he concludes that “the evidence in this article suggests that the scope of non-standard employment is substantial and that these public policy questions are indeed important.”  --­­Reported by Martha E. Mangelsdorf