The Employment Relationship and the Social Costs of Labor

By Peterson, Janice | Journal of Economic Issues, June 2007 | Go to article overview

The Employment Relationship and the Social Costs of Labor


Peterson, Janice, Journal of Economic Issues


In the United States today, important components of the social provisioning process continue to be based in the standard employment relationship. Yet many American workers are employed in various forms of nonstandard work arrangements. While proponents of nonstandard work arrangements argue that they provide flexibility for employers and workers, many nonstandard workers are excluded from employer-sponsored benefits and from coverage under key worker protection laws. The misclassification of workers also causes some workers to be excluded from fundamental worker benefits and protections. While standard employment is certainly no guarantee of having adequate access to benefits and protections in the workplace, the situations faced by nonstandard workers shed light on the importance of the employment relationship in consideration of the social costs of labor and the adequacy of our employment-based social provisioning process. This paper explores the role of the employment relationship in determining workers' access to fundamental workplace benefits and protections. Particular attention will be paid to the importance of how an "employee" is defined, and how the appropriate classification of workers is enforced.

Nonstandard Employment Arrangements

Traditionally, it is through the standard employment relationship that most workers earn a living and receive workplace benefits and protections. While there is some disagreement on the meaning of "standard employment," it typically implies full-time work, done on a fixed schedule, under the employer's control, at the employer's place of business, with the mutual expectation of continued employment (Kalleberg, Reskin and Hudson 2000, 257-258). Nonstandard employment, then, may be broadly defined to include those forms of work that do not meet some or all of the characteristics attributed to standard employment. (1)

Studies applying a broad definition of nonstandard employment find that a non-trivial share of the workforce is employed in something other than standard, full time work. For example, in a recent study the Government Accountability Office (GAO) broadly defined what it termed the "contingent" workforce to include agency temporary workers, direct-hire temporary workers, on-call workers, day laborers, contract company workers, independent contractors, self-employed workers, and standard part-time workers (GAO 2006, 6). Based on this definition, GAO estimated that in 2005, close to one-third (31 percent) of the workforce was employed in nonstandard work arrangements, a proportion that had remained fairly stable over the last decade (GAO 2006, 11).

The prevalence of nonstandard work arrangements raises a number of concerns regarding the adequacy of our employment-based system of social provisioning for this component of the workforce. In particular, there are concerns that while employers have reaped the benefits of nonstandard employment relationships (such as staffing flexibility and labor cost savings), nonstandard workers may be left without access to important workplace benefits and protections (Houseman 2001, 1; Levine 1999, 4). Employer-sponsored benefits, for example, have primarily been targeted to standard, full time workers. This is reflected in the receipt of employer-sponsored health insurance and pension benefits by nonstandard workers. Studies have documented that nonstandard workers are less likely than standard full time workers to receive employer-sponsored health insurance and pensions (see, for example, GAO 2006; and Houseman 2001).

The close link between workplace benefits and the standard employment relationship is not limited to benefits offered at the discretion of the employer. It also extends to laws providing for the regulation of employer-sponsored benefits (such as health insurance and pensions), as well as benefits mandated by law, such as family and medical leave and workers' compensation. The standard employment relationship also plays an important role in determining workers' coverage under laws establishing fundamental worker rights, such as the rights to a minimum hourly wage and overtime pay, safe working conditions, and protection against discrimination (GAO 2006; Houseman 2001). …

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