Asset ownership and hiring decisions in the United States trucking industry: The role of owner-operators

Academic and media attention has recently focused on increases in outsourcing in industries ranging from software development to automotive manufacturing. Despite well-developed theory in the labor and industrial organization literatures, there is little empirical evidence on how and why firms outsource, subcontract with labor, and lease physical capital. This dissertation contributes to an improved understanding of these factor arrangements by analyzing the empirical determinants of labor subcontracting and equipment leasing in the U.S. trucking industry.;Self-employed owner-operators produce a substantial fraction of the output of motor carriers, 40% on average between 1976 and 1993. Using Interstate Commerce Commission Motor Carrier Annual Reports for individual motor carriers between 1976 and 1993, I examine the firm's decision to own assets and hire employee drivers. These cross-section results suggest that truckload carriers use owner-operators to reduce labor monitoring costs. Trucking firms also use owner-operators to respond to poor financial performance and quickly adjust output.;Using a panel data model, I then examine how motor carriers change their mix of factors when moving along an output expansion or contraction path. The dynamic model produces evidence that motor carriers use owner-operators and leased equipment in part to meet short-term fluctuations in demand and profitability. This response is weaker with long-term changes. Consistent with the cross-section estimates, motor carriers with declining profitability shift to using more owner-operators and leased equipment. Although truckload carriers have a greater long-run demand for owner-operators, less-than-truckload carriers vary the level of owner-operators more. This difference is consistent with a greater risk of firm failure in the previously regulated less-than-truckload sector.;Finally, this research establishes that owner-operators, despite earlier predictions, remain important inputs in the industry following deregulation. After deregulation, the positive trend in owner-operator use accelerates. In a test of the increasing value of owner-operators, I find that less-than-truckload carriers respond to the increased benefit of using owner-operators by relying more on these factors.