When is Contracting Preferable to Employment? An Exploration of Management and Worker Perspectives

abstract Managers make choices regarding the types of employment structures that meet the needs of the firm, and workers make choices regarding the types of arrangement that meet their needs. Various streams of literature offer perspectives on why employment or contracting might be preferred but it is often the perspective of the firm that dominates the analysis. This kind of one‐sidedness weakens our understanding of employment as a relationship. It lacks recognition of the importance of mutuality: of matching the needs of the worker with the needs of the business. This paper reports research investigating management decisions to use self‐employed contractors or employees for particular jobs, and workers’ decisions to seek or accept organizational employment or self‐employment. Some 80 in‐depth interviews were conducted with managers and workers across two industries (energy supply and engineering consultancy) with the intent of studying two groups of workers differing dramatically in skill levels. While largely confirming existing theory on the management conditions relevant to the contracting‐out of work, the study identifies factors that make a contracting relationship more mutually beneficial, thus suggesting propositions for further research on worker preferences.