Regardless of title or tax status, the crucial dimensions of the engagement seem to be the leveraging of "just-in-time" talent for the duration of the need. This certainly keeps an organization lean and mean and hopefully competitive. In this age of information, the downside is that the company's intellectual property walks out the door in event of a workforce retrenching. Like Wall Street quarterly numbers, there is a short-term advantage, in this case cost savings, but a long-term loss to the corporate infrastructure.
Apple, for example, at $400 a share is hiring with a 60-40 rule: 60% contractors and 40% regular employees with benefits, stock options, and 401K matching. Those 60% have no loyalty and great motivation to leverage their time and accrued cache at Apple to find a higher paying position elsewhere. Say goodbye to the intellectual horsepower and gleaned expertise as it walks out the door.
Google does the same thing and even houses many contract employees in different buildings where they are easy to terminate contracts and make go away without any disruption of "the force, Luke". Many people in non-essential functions are hired this way: HR/finance/accounting/marketing/sales/recruiting functions.
I have singled out these companies as they are high profile, easy to use as examples and I am in their hood so I have access to information. I am sure that other companies and industries elsewhere in the USA are behaving the same way.
We aren't in that flat of an economy, viable talent that can get contract work is marketable and in demand in many industries and services that have stabilized and recommenced growing. The 14M folks unemployed do not all fit that category because of obsolete skills or no work experience, age discrimination, geographical region, a consolidating industry, or too long a tenure at one company. That is the topic of another blog post in how to remedy those road-blocks.
The point is that companies are being incredibly short-sighted using a just-in-time talent pool due to the loss of productivity, a reliable knowledge-base, and eventual diminishing of bottom-line results. Further, this approach, combined with a lack of a viable national safety-net of health insurance and unemployment insurance for a contract workforce will ultimately drag down an economy and a nation built on an ever-growing pile of short-term solutions to systemic unbalances and unfairness.