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Earnings and benefits of workers in alternative work arrangements

Monthly Labor Review - October 1, 1996

Approximately 1 of 10 workers was employed in an alternative work arrangement, according to data from the February 1995 Contingent Worker/Alternative Work Arrangement Supplement to the Current Population Survey (CPS). Alternative work arrangements include working through a temporary help agency, working for a contract company, working on-call, and working as an independent contractor.

It has been argued that some altemative work arrangements have come about through companies, efforts to reduce costs. Finns often find it cheaper to contract out for services such as security and payroll than to perform these functions in-house. In addition, the use of temporary help agencies can reduce costs by allowing firms to expand production during periods of increased demand without having to hire permanent workers or incur the costs of firing unneeded workers. Having a pool of on-all workers available serves die same purpose. By hiring independent contractors, firms can gain access to workers with highly specialized skills on an as-needed basis.

Have these developments been detrimental to workers? Not necessarily, if these arrangements allow workers to better direct their talents to where they are most highly valued, they may actually be better off. This article compares the earnings and benefits of workers in these altemative work arrangements with those of workers in traditional arrangements.

Earnings

The earnings of workers in altemative work arrangements relative to those in traditional arrangements vary significantly. Workers employed by temporary help agencies and those who are on call earned less than workers in traditional arrangements, while contract company workers and independent contractors earned more. (see table 1.) Some of the difference between the various alternative arrangements can be attributed to the occupational make-up of each arrangement. For instance, people employed by temporary help agencies were more likely to work in administrative support or laborer occupations which tend to pay lower wages. In contrast, independent contractors were more likely to work in higher paying managerial and professional specialty occupations.

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Of the four alternative work arrangements, persons employed by temporary help agencies earned the least. Overall, full-time temporary help workers earned 60 percent of the traditional worker wage. Men who worked for temporary help agencies earned 51 percent as much as men in traditional work arrangements, while women earned 72 percent as much. Younger temporary help workers earned a larger percentage of traditional worker earnings than did their older counterparts. Interestingly, among temporary help workers, women out-earned men.

Although earnings of temporary help workers generally increased with educational attainment, temporary help workers earned more, relative to national workers, at lower education levels. Temporary help workers tend to work in lower paying occupations, about three-fifths of them hold administrative support and operator, fabricator, and laborer jobs.

Full-time employees of contract companies earned more ($512 - median weekly earnings), in general, than workers in traditional arrangements ($840 - median weekly earnings). Women who work for contract companies earned slightly less than women in traditional arrangements, while men earned more. (Unfortunately, it is not possible to say much more than this, because the sample sizes in many of the cells are too small for analysis.)

On-call workers who worked full time as well as those who worked part time earned about 80 percent of what similar workers in traditional arrangements earned. On-call workers were much more likely than those in traditional arrangements to work part time, however. Men working on-call earned more relative to traditional workers than did women. By age, on-call workers earned about 25 percent of what traditional workers earned. This reflects the higher proportion of on-call workers who are younger.

Among full-time on-call workers, those with an associate degree fared the best, and even out-earned those with college degrees (a large share of whom are substitute teachers). As one might expect, weekly earnings of high school dropouts who work on-call were the lowest, although their earnings were very close to the earnings of high school dropouts in traditional arrangements.

Overall, independent contractors earned more than workers in traditional arrangements. However, female independent contractors earned less than workers in traditional arrangements; for men (who dominate the group numerically), the reverse was true. In nearly every age group, independent contractors earned more than traditional workers, with older workers having the greatest difference. Independent contractors without a post-secondary degree earned more than their traditional counterparts, while those with a degree earned less.

Health insurance coverage

Overall, workers in traditional arrangements were more likely than those in altemative arrangements to have health insurance, although there was wide variation in coverage among alternative work arrangements.(1) Workers employed by temporary help companies had the lowest rate of health insurance coverage from all sources (45 percent), while independent contractors had the highest rate (73 percent). By comparison, the proportion of workers in traditional arrangements with health insurance was 83 percent.

Workers in traditional arrangements also were more likely than those in alternative arrangements to be eligible for, and receive, employer-provided health insurance. Among traditional workers, women were slightly more likely than men to have health insurance from any source, while men were likely to receive coverage from their employer.

Of workers employed by temporary help companies, 6 percent received their health insurance from their employer, while 23 percent said they were eligible for coverage. Although workers employed by temporary help companies were not likely to have employee-provided health insurance, more than two-fifths had coverage from any source, implying that many of these workers were receiving coverage from a family member or some other nonemployment-related source. (see table 2.)

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Compared with temporary help workers, contract workers were more likely to receive or be eligible for health insurance from their employer. They also were more likely to accept coverage from their employer, when it was offered. Slightly more than two-fifths of contract workers received health insurance from their employer, while nearly three-fifths were offered coverage. (See table 3.) Unlike temporary help workers, a relatively large fraction (7 percent) of contract workers received health insurance through a union or other job. A large proportion of contract workers - 70 percent - had health insurance coverage from some source. Contract company workers in service occupations were much less likely to have health insurance than were those in other occupations. In fact, excluding those employed in service occupations, the health insurance coverage rate for contract workers would be about 78 percent, which is very close to the coverage rate for traditional workers.

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On-call workers were 1-1/2 times more likely than temporary help company workers to have coverage, and were about 3 times as likely to obtain coverage from their employer. In comparison to temporary help workers, a slightly higher proportion of on-call workers (27 percent) were offered employer-provided health insurance. (See table 4.) About two-thirds of on-call workers had health insurance from some source. Older on-call workers were more likely to be covered overall, although they were less likely to receive coverage from their employer. The proportion of on-call workers with health insurance ranged from 28 percent among those in farming, forestry, and fishing occupations to 76 percent among those in administrative support occupations.

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