Why Does Inequality Increase with Flexible Employment?

Abstract

We develop and test a theory on why the inequality between novice and veteran workers may exacerbate with “flexible” employment practices—that allow employers to hire and fire workers more freely. Literature suggests that novice workers cannot rely on flexible employers to give them opportunities for building a career or accumulating skills, thus suffering from an exacerbated inequality. But employers using flexible employment practices may initially hire those whose skills have not been demonstrated but seem promising, compared to “committed” employers that hire workers for the long term, because flexibility allows employers to experiment instead of having to commit for a long term. Thus, the inequality of opportunities may decrease with flexible employment. Nevertheless, flexible employers may be less likely to continue hiring novice workers for the long term than veteran workers, insofar as novice workers on average are revealed during the experimentation stage to have lower skills than veteran workers. Consequently, more experimentation in the industry may imply a competition lopsided in favor of veteran workers and eventually reduce the share of novice workers hired long-term, exacerbating the arguably more consequential inequality—inequality of long-term employment. We test and confirm this idea in the TV programming industry where being either the committed, or “straight-to-series,” program—that commits to producing an entire season and hiring actors for the entire season—or the flexible, or “pilot,” program—that evaluates the first episode before committing to producing an entire season and hiring the cast for that full duration—is deemed viable.