Information technology and the push from in-house employees to agency temps

Information technology (IT) does not undermine job quality. But it doesn’t make the jobs any better either. Managers do. As Adam Seth Litwin and Sherry M. Tanious write, employers can manage relationally or contractually, and that determines whether or not IT facilitates the dissolution of conventional employment relationships.

Employers have used information technology (IT) since the 1970s and 1980s to fundamentally transform the working relationship. Employers now looking for flexibility rather than stability in a globalized, highly competitive marketplace have used IT to replace full-time workers with temporary workers employed by outside recruitment agencies, independent contractors, freelancers or even machines – a phenomenon that as the “externalization” of work.

IT facilitates the externalization of work by enabling employers to (1) monitor and monitor the productivity of employees worldwide in real time, (2) break work down into simpler, individual tasks, and (3) coordinate work. Ergonomists have theorized that employers use IT to reduce labor costs. Discretion or long term opportunities that traditional employment has offered in the past. In a recent magazine article, we undertake to quantify how the introduction of IT enables, drives, or restricts the transfer of work from internal employees to temporary workers or “temporary workers” hired by external recruitment agencies and outsourced to traditional employers.

We draw on data from the Workplace Employment Relations Study (WERS), a representative sample of more than 2,500 UK companies administered by the UK Government. Using linear probability models, in accordance with the existing literature, we find that IT adoption positively correlates with job reallocation, both before and after controlling company size, industry and other factors. Some companies are more likely to assign work than others – for example, larger companies are more likely to assign work to temporary workers, and establishments that have at least one union negotiating on behalf of at least some workers are more likely than non-unionized establishments to work in an employment agency.

While in the UK neither foreign ownership of the company nor independence of the company drives job reallocations, jobs with concentrated ownership are less likely to report job reallocations. This implies that labor relationships may be relational rather than contractual – bosses who actually know and work with their employees are less likely to outsource their work to temporary workers. Finally, we find a positive correlation between downsizing and reallocation of jobs after controlling the IT rollout – managers who cut their jobs in the previous year were 5% more likely to have outsourced work once it was done in-house.

Next, let’s look at the relationship between IT rollout and downsizing with reallocation of work to temporary workers. It is important that the downsizing of companies without IT implementation essentially does not correlate with the reallocation of work to temporary workers, but that the introduction of IT is strongly correlated with the reallocation of jobs from internal employees to temporary workers when they are downsized in connection with downsizing.

Using linear probability models, we then evaluate whether management decisions regarding business strategy – whether the company is competing on price or quality – affect the goals of the IT deployment; House. We find that employers who opt for price rather than quality competition are more likely to transfer temporary workers, employers who rely on quality-driven strategies actually rely on technology to avoid reallocation of jobs, and work internally to keep. In addition, employers who manage to pursue a price-oriented business strategy while maintaining an employment model “on the street” will be significantly less likely to outsource to temporary workers. Accordingly, it is possible for employers, competing on either quality or price, to avoid reallocation if they so choose. That is, the adoption of IT allows employers, but does not force them to shift work that is traditionally done by internal staff to temporary workers. In summary, our results provide the first statistical evidence that recent technological change has indeed facilitated the erosion of the conventional, mutually binding, dyadic employment model.

These results have important implications for labor policy and legal rights. Temporary workers, most of whom would prefer standard employment, have less job security, economic stability and poorer health outcomes than those directly employed by client firms. In addition, temporary workers are deprived of the employer’s investment in skills development, which has negative long-term effects on both workers and their families and the human capital stock of an economy. The erosion of the traditional employment relationship in favor of these atypical work regulations tilts the existing power imbalance between employers and employees further in favor of employers. Policy makers should be aware of advances in technology and the introduction of a wide variety of staffing options now available to employers.