Avoiding the employment relationship: Outsourcing and labour substitution among French manufacturing firms, 1984–2003

Publication Date01 Dec 2013
International Labour Review, Vol. 152 (2013), No. 3–4
Copyright © The authors 2013
Journal compilation and translation © International Labour Organization 2013
Avoiding the employment relationship:
Outsourcing and labour substitution
among French manufacturing rms,
Corinne PERRAUDIN,* Nadine THÈVENOT* and Julie VALENTIN*
Abstract. Using a comprehensive data set for French manufacturing rms with
over 20 employees, the authors quantify the use of outsourcing and show how it
has spread since the mid-1980 s, leading to the substitution of external labour for in-
house labour. Empirical analysis suggests that rms outsource in order to bypass the
effects of the employment relationship and circumvent their labour law obligations.
number of recent reports have highlighted the need for new kinds of
worker protection for subcontracted labour. The increased use of sub-
contracting, or outsourcing, is a subject of debate not only in France (Centre
d’analyse stratégique, 2011; Conseil économique et social, 2005; Volot, 2010),
but also internationally (ILO, 2006; Casale, 2011). By outsourcing, rms are
able to mobilize labour without entering into an employment contract with
the subcontractors they use, thus doing away with the “standard employment
relationship” (Casale, 2011). This has repercussions for employment quality
in that subcontractors’ workers enjoy less favourable employment and work-
ing conditions than those of outsourcing rms. Thèvenot and Valentin (2005),
for example, show that in 2000, subcontractors paid lower average wages than
other rms in France. Research carried out in the United States shows that
“contingent workers” have less stable employment (Houseman and Polivka,
2000) and lower wages (Erickcek, Houseman and Kalleberg, 2003; Segal and
Sullivan, 1995).1 Similarly, there have been reports of wage compression and
* Centre d’économie de la Sorbonne CE (UMR-CNRS 8174), Paris, emails: Corinne.
Perraudin@univ-paris1.fr; Nadine.Thevenot@univ-paris1.fr; Julie.Valentin@univ-paris1.fr. The
authors wish to thank Delphine Brochard and the reviewers of the International Labour Review
for their comments and suggestions.
Responsibility for opinions expressed in signed articles rests solely with their authors, and
publication does not constitute an endorsement by the ILO.
1 In the United States, “contingency work” covers xed-term contracts, temporary agency
work, outsourced services and “on-call” workers, as opposed to employees with a standard employ-
ment contract (Polivka, 1996).
International Labour Review526
loss of social protection in the Canadian textile industry (Jalette, Charest
and Vallée, 2002) and the Australian transport and construction industries
(Mayhew and Quinlan, 2001).
This article aims to give an empirical overview of the prevalence and
spread of outsourcing in the manufacturing industry in France since the mid–
1980s, showing how this has affected the employment relationship, since
the rms in question subcontract labour using a commercial contract, not an
employment contract. After looking at whether such practices amount to the
substitution of external labour for in-house labour, we test the hypothesis that
rms outsource in order to bypass the effects of the standard employment
relationship and circumvent their labour law obligations.2
The article is based on individual quantitative data from the Annual
Business Surveys published by France’s National Institute of Statistics and
Economic Studies (INSEE) for all French rms having at least 20 employees.3
In addition to providing information on rms’ employment and turnover, these
surveys are the only source of information on their outsourcing expenditure.
The annual survey data are compared over the period 1984–2003, such that
the changes observed in outsourcing practices can be said to be structural. Two
indicators are used to identify the labour subcontracting practices of individual
rms and how they affect the labour law protection of employees.
The remainder of this article is organized into four sections. The rst pre-
sents the denitions and data used and – using two indicators, the outsour-
cing rate and the outsourcing intensity rate – shows how outsourcing by French
manufacturing rms increased from 1984 to 2003. The second section compares
these two indicators with the number of the outsourcing rms’ wage employ-
ees over the period in order to establish empirically whether individual rms
substitute subcontracted labour for in-house labour. The third section tests the
hypothesis that rms outsource in order to bypass the employment relationship
– i.e. high labour costs and employment-related responsibilities – and circum-
vent labour law provisions triggered by specic employee number thresholds.
The last section summarizes our results and conclusions.
The growth of outsourcing and corresponding
relative expenditure
Data and definitions
Expenditure on outsourcing, as recorded in rms’ annual accounts, is broken
down into three categories: general outsourcing (administration, maintenance,
2 Elements of this hypothesis are explored by Houseman (20 01), a key feature of whose em-
pirical model is that rms seek to avoid having to pay social benets. This cannot be said to be the
reason for substitution in France, where the national social security system, rather than the rm it-
self, is responsible for health-care and pension benets.
3 Details of these surveys are available at: http://www.insee.fr/en/methodes/default.asp?
page=denitions/enquete-annuelle-entreprises.htm [accessed 10 September 2013].

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