Predicting the use of external labor arrangements: A test of the transaction costs perspective

Firms' increasing use of external labor arrangements has been difficult to reconcile with resource-based propositions concerning the development of organizational capabilities. We tested hypotheses drawn from the transaction costs perspective to predict which jobs firms would fill through external arrangements rather than through traditional employment relationships. The findings may help to explain the apparent paradox between the increasing externalization of workers and their use as a source of sustainable competitive advantage.