Contractors can help to keep the official headcount low and, because contract workers don't get the same benefits such as health-care benefits or 401(k) matching, can help companies free up millions to hire and retain talent in areas such as artificial intelligence. On a larger level, the trend toward more contract workers can be seen as another sign of widening inequality as it creates an underclass of workers who are, by all appearances, working full-time but getting none of the benefits of full-time employment.
According to a 2016 study by researchers Chris Benner and Kyle Neering at the University of California Santa Cruz, the information sector in Santa Clara county has quadrupled in size in 2001, and the tech industry has added surprisingly few jobs since 1990. Over the last 24 years, direct employment in tech products or services companies has grown by 31 percent, which comes out to an average growth rate of 1.1 percent. Part of that reason can be tied to the rise of subcontracting.
It's not just administrative or "blue-collar-type" jobs that are being affected. Whereas 10 years ago, most contractors were in administrative-type roles, today the fastest growth in contract work is in highly skilled "white collar" roles, recruiters say. Economists Lawrence Katz and Alan Krueger in a 2016 study found that workers with jobs in higher wages are more likely to have their services contracted out than jobs associated with lower wages. Such "alternative" work arrangements are becoming more common among older and more educated workers.
"The hiring market is crazy competitive. I'm not sure it's been like this before. You can send 100 emails, and maybe 10 respond. There is far more demand than supply. Because there is such a shortage, companies are more willing to hire on a short-term basis," said Cheryl Liew, a Bay Area-based independent recruitment consultant who works with start-ups such as Instacart.
In Silicon Valley the competition to hire in-demand talent is particularly fierce. Large tech giants, such as Google, Facebook and Amazon, tend to pay better and suck up a lot of the talent, leaving start-ups and smaller companies in a bind.
"With a record-high hiring boom, staggering real estate prices and so many high-profile technology companies headquartered in the Silicon Valley, the intense competition for talent leaves many small and midsize companies in a very tough spot when it comes to scaling their efforts," said Rich Pearson, senior vice president of marketing at Upwork.