Multi-layered Labor Contracting and Distribution of Power: Evidence from Employment Records for Nonstandard Work

• In Event: 2150 - Technology, Flexibility, and Work Arrangement

Abstract

This paper examines an important yet little-understood phenomenon governing alternative work arrangements: the rise in the “multi-layered labor contracting” structure in which the recruitment of nonstandard workers is outsourced to an intermediating organization who then selects qualified workers from a group of competing suppliers. I make the very first scholarly attempt to examine the link between such multi-layered contracting arrangements and subsequent economic outcomes for both the hiring lead firms and the workers. Based on power-dependence theory, I argue that the lead firm’s discretion to work with one additional intermediating organization in this technological platform compresses supplier power, which then incentivizes suppliers to transfer the competitive price burden to workers. Using proprietary data from employment records of about a million workers seeking nonstandard work at 49 large firms, I find that an additional contracting layer between the lead firm and the worker is associated with higher returns to the firms and lower returns to the workers. When workers gain bargaining power, however, through a pre-existing firm-worker relationship, the results show that the loss from an additional contracting layer is significantly reduced. The results hold even when controlling for supplier fixed effects to control for unobservable supplier characteristics, as well as when controlling for detailed measurement of skill requirements for nonstandard jobs that may instead dictate the price-setting process. Findings from this paper have potential for improving our knowledge of hiring practices in organizations and social structural inequality using the theoretical constructs of power and price-setting.

Author

• Hye Jin Rho, MIT/CEPR