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Lower Cost or Just Lower Value?

AMD-2015-0119.R2 from AMD Volume 3, Issue 2
Sandra L. Fisher and Catherine E. Connelly
Although many managers assume that the use of contingent workers helps organizations lower their costs, it is unclear if these anticipated savings actually materialize once these workers’ productivity and indirect costs are taken into account. The purpose of this paper is to identify the conditions under which contingent workers may (or may not) be a cost effective solution for organizations. We develop a theoretical framework of the financial costs and benefits of three different contingent work arrangements, taking into account direct and indirect costs as well as the value of both task performance and organizational citizenship behaviors. This framework suggests that costs associated with lower performance and higher turnover substantially reduce the overall value of temporary agency workers. We then use a simulation approach with six scenarios representing different organizational strategies to examine how organizational circumstances may further affect the likelihood that the use of contingent workers actually represents a significant cost savings. Our results suggest that although temporary workers were less cost effective (and independent contractors were more cost effective) in each scenario, the cost effectiveness of each worker type also varies depending on the strategy, with the “Temp-to-Perm” approach being most cost effective overall.

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