Abstract
Atypical work forms, such as agency temporary, consulting/contracting, and contract work, have been criticized as providing employers with a means to avoid government-mandated employment protections. In such cases, we would expect to see a lower prevalence of atypical work in right-to-work (RTW) states relative to non-RTW states. We test for this possibility using data from supplements to the 1995–2005 Current Population Surveys. Our empirical results provide a degree of support for this contention as we see significantly lower overall fractions of atypical work in RTW states than we do in agency- or union-shop states.
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Notes
Highlighting the demographic differences are Cohany [1996; 1998], with Hipple and Stewart [1996] providing a stylized summary of earnings differences. Addison and Surfield [2009] analyze employment outcomes.
A recent court filing directly assessed these concerns in 2010. Federal Express was named as a defendant in a class-action lawsuit, which alleges that it had deliberately classified its workers as independent contractors to evade certain state and federal employment mandates, such as health benefits and the ability to unionize [In re FedEx Ground Package System, Employment Practices Litigation].
The term “Non-RTW” states is used in this paper given that there are two kinds of non-RTW states: agency-shop states and union-shop states. Agency-shop states do not require that workers join any incumbent union, but “fair-share” dues are, nonetheless, collected from non-unionized workers’ wages given that they are still covered under any collective bargaining agreement. Union-shop states strictly require that workers pay full union dues to any incumbent union representing a firm's workforce to maintain employment at that employer. Both share a common characteristic in that they limit a firm's ability to adjust its workforce subject to a collective bargaining agreement with a group representing its workforce and provide the automatic financial means to support a union's activities.
At a minimum, the due process costs associated with dismissing a (unionized) worker might alone be sufficient to hinder the hiring of an employee initially viewed to be a more marginal match by a firm.
Of course, the lack of benefits flowing to these contract workers might necessitate a firm paying a wage premium to secure the talents of these workers, ceteris paribus.
For a review of the decision made by workers to engage in atypical work, see Polivka [1996]. This deficit on the supply-side of atypical work is being rapidly overcome. A review of the recent literature on the types of workers filling AWAs, and the implications of doing so, is provided in Addison and Surfield [2007] and Addison and Surfield [2009], respectively.
The results provided by Gramm and Schnell [2001] do indirectly test for the use of atypical work in the face of external constraints imposed on a firm's ability to adjust its work force. Their survey of Alabama firms provided them with data with which they tested for the possibility of firms relying on flexible staffing arrangements to respond to cyclicality in workplace staffing. Staffing flexibility might be not possible with regular employment due to a number of reasons, one of which may be government policies regarding hiring/firing. Their results yielded little significant findings attached to the use of flexible staffing arrangements for staffing flexibility purposes.
The other two exceptions identified by Autor are public policy and good faith and dealing exceptions. These two exceptions, however, are not as common as the implied contract exception and had little explanatory power in predicting changes in temporary employment levels.
The Fantus Index was conducted by the private consulting firm for the Illinois Manufacturers Association in 1975 to rank states in terms of their business climates. A state holding a higher rank in the Index indicated that their business climate was more “desirable” relative their lesser-ranked counterparts. For a more complete discussion on the various state business climate rankings, see Kolko et al. [2011].
What made this form of identification particularly troublesome was when employees gave the industrial code of the client firm rather than that of their “true” employer, the temporary staffing firm. In such circumstances, the prevalence of temporary workers was likely to be significantly understated.
Budgetary constraints prevented the collection of data in 2003, providing us with only five usable waves of the CAEAS.
We note that the CAEAS/CPS includes data on two additional atypical work arrangements: direct-hire temporary and oncall workers. These two work forms are not included in this study as they potentially come with the same legal responsibility attachments as is the case as regular workers given such workers are placed directly on a firm's payroll.
It is this second condition which might lead to the misclassification of those regular workers on the payroll of a temporary help agency as “agency temporaries.” Such workers, however, are fairly miniscule in terms of a temporary agency's payroll. The imposition of this condition more accurately classifies as agency temporaries those workers who are actually employed by a temporary help agency, but mistakenly listed the client firm as their employer.
Examples of such employment include the assumption of a firm's accounting, information technology, or on-site food preparation operations.
One concern attached to using these rankings pertains to the variability of the rankings held by states over the course of the time period evaluated. Tabulations of the three sub-indices suggest that there is a fair degree of variability in terms of where a state ranks across the various years. Annually, over 50 percent of the states moved six or more spots in the Government Size sub-index, 60 percent moved six or more spots on the Labor Market Flexibility list, with 67 percent moving a comparable amount in the Tax Policy ranking.
We use the rates reported in 2005 as this was the first time in which the Department of Labor's Employment and Training Administration published standardized data on the average rate for new firms. A review of the January Month Labor Reviews, which summarized major changes in the states’ unemployment systems, suggest no major changes in the rate over the 1995–2005 time period covered by our data.
Sample size considerations prevented us from estimating this policy factor variable for both Alaska and Hawaii, necessitating their exclusion from our study.
Households contained in the CPS are interviewed for 4 months, rotated out for 8, and re-interviewed for 4 more months before being permanently rotated out of the CPS.
These models were also estimated using the individual years rather than the pooled sample as additional sensitivity checks. Across 4 of the 5 years, 2005 being the notable exception, the coefficients estimated were largely of the same sign and magnitude. Owing to the much diminished sample size, however, very few of the coefficients estimated for RTW status in these annual samples achieved significance at conventional levels. Also, Oklahoma was the only state to have changed its RTW status across the five different waves of the CAEAS/CPS. Excluding this state from the sample did not materially affect the results presented in this paper. The results of all these exercises are available from the author upon request.
In short, much of the problem is the result of Jensen's inequality, which holds E[ln(y)]≠ln[E(y)].
The results of this exercise are available from author upon request.
For example, attention to issue has been paid in agricultural economics [Hertz 2009], health economics [Manning and Mullahy 2001], international economics [Santos Silva and Tenreyro 2006], as well as in other labor economics applications [Hirsch and Schumacher 2012].
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Acknowledgements
I am deeply indebted to the patience of the editor, the very helpful comments of two anonymous reviewers, as well as the conversations with John Addison and McKinley Blackburn. Any errors, however, remain my own.
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Surfield, C. Government Mandates and Atypical Work: An Investigation of Right-to-Work States. Eastern Econ J 40, 26–55 (2014). https://doi.org/10.1057/eej.2012.34
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DOI: https://doi.org/10.1057/eej.2012.34