The unexpected employee and organizational costs of skilled contingent workers.

Skilled contingent workers (SCWs) provide flexible and competent labor with fewer long-term financial commitments for firms than regular employment, but do their potential indirect costs possibly outweigh these benefits? What potential effects might SCWs have on work relationships of similarly skilled regular employees? Reactions from regular employees may require action from HR managers to minimize the negative outcomes for companies. SCWs may introduce feelings of inequity in regular employees and provide information about work opportunities outside the hiring companies. These influences may lower productivity or increase voluntary turnover. Consequently, companies may implement policies to increase their employees' organizational commitment to

What are the organizational ramifications of hiring skilled contingent workers? How do regular employees react to the presence of workers in these alternative work relationships? What can HR professionals do to minimize potential problems when utilizing this increasingly common source of labor? The model presented builds upon current research that studies the implications for regular employees of using contingent workers. Specifically, focusing on the use of skilled contingent workers, it predicts similarly skilled regular employees to have higher turnover and lower performance caused by a heightened sense of inequity and an increased awareness of the external labor market because of the presence of SCWs. Further, it suggests organizations will implement more policies aimed at improving the organizational commitment of their skilled, regular employees to counteract these employee outcomes.

These proposed relationships expand the current research about the impact of contingent workers on regular employees by addressing not only some of the potential changes in regular employees' work relationships with their companies but also organizational responses to these changes. These organizational responses consist primarily of long-term policies for regular employees, which will increase companies' long-term workforce commitments and expenses. These additional policies force the question: "Do skilled contingent workers really deliver companies the lower financial commitments than regular employees?" The question of hiring or not hiring temporary workers began with two simple organizational goals: staffing flexibility and lower long-term labor costs. The model tries to clarify whether these goals can be successfully attained without losing out on two other important organizational goals: employee productivity and loyalty.

In the last two decades there has been a growing discussion about temporary or contingent workers. A recent survey of U.S. employers showed that 78 percent of sampled organizations used some alternative employment relationships (Houseman, 2001). This widespread use across industries and organizations of all sizes is an indication of the importance of these alternative work relationships. Researchers have studied the impact of alternative work relationships on people working in these types of jobs (Becket, 1984; Carey & Hazelbaker, 1986; Bolt, 1983; Christensen, 1988; Doeringer, et al., 1991; duRivage, 1992, Lindbeck &Snower, 1988; Mangum, et al., 1985; Rebitzer, 1998; Polivka, 1996b; Rogers, 1995). Also research has been done about the reasons organizations use these alternative work relationships (Matusik & Hill, 1998; Abraham & Taylor, 1996; Segal & Sullivan, 1995). Recently, we have started to acknowledge these relationships may have some effect on the employees working in regular, "permanent" jobs at the companies where these contingent arrangements are being used (Ang & Slaughter, 2001; Gramm & Schnell, 2001; Wong, 2001; Pearce, 1993).

This more recent research raises issues for HR managers about the overall efficacy of staffing with contingent workers. Hopefully, this article will contribute to this research by expanding the discussion of the role SCWs play in work outcomes of the regularly employed workers and by introducing the idea that there may be negative consequences for the organizations that hire them. Earlier research found certain outcomes that temporary and contingent workers have on regular employees including enlarged jobs (Ang & Slaughter, 2001), higher wages than other regular employees in their industries (Gramm & Schnell, 2001), perceptions of lower job security (Wong, 2001), and lower organizational trust from employees (Pearce, 1993). The proposed model builds on these findings to suggest that regular employees may react to the presence of SCWs through lower productivity or higher turnover. The adverse effects of these changes for companies using temporary workers may trigger organizational action to minimize these negative outcomes. HR managers may want to consider these ideas if they are currently struggling with alternative employment relationships or if their organizations are considering adding these staffing strategies.

Given the limited nature of current research on the regular employees' perspectives and the lack of research on organizational responses to these issues, the model is general enough to include both employee and organizational levels of analysis. This approach may contribute to the burgeoning discussion about these aspects of contingent work and allow any new or cross-level relationships to become evident.

Overview of Model

Until recently, it was assumed that companies could hire skilled contingent workers to avoid some of the more binding aspects of employment (e.g., employee benefits, long-term employment relation ships) without experiencing negative reactions from similarly skilled, regular employees because internal labor market (ILM) protections were provided to these regular employees. The model challenges this belief by predicting potential interactions between regular employees and companies brought about by the hiring of SCWs.

SCWs differ from regular employees because they do not have explicit (i.e., formal, clearly defined, and communicated agreements) or implicit (i.e., an understanding between employees and employers but not formalized through a written agreement) contracts to stay with an organization for an indefinite period of time. SCWs work at companies as long as their skills are required and then move to another company. Contingent arrangements come in a variety of forms and skill levels including independent contractors, on-call, temporary agency, and contract firm workers and comprise about 9.4 percent of the U.S. workforce (Bureau of Labor Statistics, 2001). SCWs tend to be concentrated in the independent contractor and contract firm worker categories. Common to all of these forms and a key defining element of contingent work is the degree of uncertainty regarding the continuance of the work relationship with the organization (Polivka, 1996a). Because SCWs are temporary workers, they generally are not considered part of companies' regular employees and may be hired without incurring some of the commitments associated with regular employees. SCWs typically are not included in benefits programs, are easier to dismiss than regular employees, allow companies to access specialized skills without incurring training costs, and may reduce companies' recruiting and selection costs. Because of these reasons, SCWs are believed to provide companies with quality workers with relatively higher workforce flexibility and lower fixed financial commitments in comparison to regular employees. Or do they?

Work relationships are not determined by single, independent events but rather by many intermingled events. Therefore companies' use of SCWs should be expected to change the terms of work relationships between these companies and their similarly skilled regular employees (Gramm & Schnell, 2001; Wong, 2001; Ang & Slaughter, 2001). Their regular employees working with these SCWs will have additional sources of information on the external labor market than regular employees who do not work with SCWs. Regular employees may use contingent workers as a conduit of information about opportunities in the external labor market and potentially as an aid to entering into contingent work themselves. Regular employees working with SCWs will be more aware of the favorability or unfavorability of external employment opportunities for their jobs. They will also be exposed to the alternate work relationships developed for SCWs, which frequently include compensating wage differentials (CWD), a wage premium to pay for the inconvenience of contingent work. CWDs often make SCWs' direct compensation significantly higher than the average employee's total compensation (Gregory, 2001). These factors may cause regular employees working with SCWs to alter their perceptions of their work relationships. Their greater awareness of the external labor market and feelings of inequity about their own work relationships may result in their companies having higher turnover and lower performance by skilled regular employees unless these employees are highly risk-averse.