I don’t know what the optimum ratio of employees to independent contractors would be. No one does. But we can be pretty certain that the current skewing of the economy towards less wage employment and more independent contracting by Obamacare is not a good thing.
You see, “one consequence” of the health reform package, writes economist David Henderson on EconLog, “is an increase in contracting out to avoid the 50-person threshold.”
Now, if there were a general shift towards part-time employment and professional contracting as a result of businesspeople and workers appraising their advantages on the open market, we’d just note this with interest or a shrug and say, “whatever the market decides.”
After all, people might substitute wage contracts for performance contracts (or vice versa) for reasons given by Nobel Laureate R.H. Coase, who figured out why firms exist at all: contracting out isn’t costless. It takes time to negotiate each deal, each task, etc. My friend Dr. Henderson will correct me, I hope, if I’m wrong, but employing labor full-time — by bundling numerous tasks together — is usually easier and cheaper than seeking out specialists and consultants for each task you want done.
In recent years we’ve seen a rise in consulting professionals, in part because the Internet has reduced the costs associated with working from a distance. But today’s switch to independent contractors (as well as to part-time employment) is a result of Obamacare raising the cost of keeping full-time employees. Of course businesses will seek to … economize.
And we know such substitution is suboptimal because people are doing it under duress, the threat of force behind Obamacare.
This is Common Sense. I’m Paul Jacob.