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The use of alternative employment arrangements by small businesses: evidence from the 2003 Survey of Small Business Finances

  • Traci L. Mach
  • John A. Holmes
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    According to the CPS, employees in alternative work arrangements make up over 10 percent of U.S. workers. Because of the pervasiveness of these types of arrangements, it is important to understand why firms are choosing to use them. Using data from the 2003 Survey of Small Business Finances, we model the firm's decision to use alternative employment arrangements using a large representative sample of small businesses in the U.S. In general, our results are similar to previous establishment-level studies that have examined the use of these types of employment arrangements. However, many of these previous studies have been narrow in scope because of data limitations. We find evidence to support each of the following hypotheses: 1) firms may be using alternative employment arrangements (AEA) in an attempt to generate cost savings by substituting standard employees with AEA employees when internal wages and benefit costs are high; 2) firms may be using AEA to meet irregular product demand constraints; and 3) firms may be using AEA to take advantage of economies of scale for certain tasks or services. Additionally, we present some additional findings that add to the relatively limited establishment level literature on alternative employment arrangements.

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    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2008-45.

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    Date of creation: 2008
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    Handle: RePEc:fip:fedgfe:2008-45
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    1. Marianne P. Bitler & Alicia M. Robb & John D. Wolken, 2001. "Financial services used by small businesses: evidence from the 1998 survey of small business finances," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Apr, pages 183-205.
    2. Susan N. Houseman, 2001. "Why Employers Use Flexible Staffing Arrangements: Evidence from an Establishment Survey," ILR Review, Cornell University, ILR School, vol. 55(1), pages 149-170, October.
    3. Cynthia L. Gramm & John F. Schnell, 2001. "The Use of flexible staffing arrangements in core production jobs," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 54(2), pages 245-258, January.
    4. Katharine G. Abraham, 1988. "Flexible Staffing Arrangements and Employers' Short-Term Adjustment Strategies," NBER Working Papers 2617, National Bureau of Economic Research, Inc.
    5. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538.
    6. Katharine G. Abraham & Susan K. Taylor, 1993. "Firms' Use of Outside Contractors: Theory and Evidence," NBER Working Papers 4468, National Bureau of Economic Research, Inc.
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