Hierarchical Forms of Outsourcing and the Creation of Dependency

Abstract

The focus of this paper is outsourcing activities, where the contracting worker is formally self-employed but the conditions of work are similar to those of employees. It is argued that the outsourced workers are dependent on or integrated into the firm for which they work. We investigate the mechanisms by which firms mix governance structures and give evidence of how these 'hierarchical' forms of outsourcing create dependency. The key argument of this paper is that firms have established governance structures based on markets, hierarchies and self-enforcing relational contracts so that they are able to keep a substantial amount of control despite sourcing out of labour. Furthermore, we argue that such hierarchical forms of outsourcing produce dependency. Using empirical evidence of the Austrian insurance industry, it is demonstrated that dependency is created, firstly, by the contractual restriction of alternative uses of resources, secondly, by support measures that bind the worker closely to the outsourcing firm, thirdly, by relationship-specific investments made by the worker and, fourthly, by authority elements.

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