From a different angle, an employer solves a set of problems for employees-- smoothing out the income stream, and doing a bunch of logistical details associated with finding work, having what's needed to do the work, and getting paid. This is apparently so valuable that free-lancers get paid between 2 and 3 times as much per hour as employees.
This is a seductive explanation, but competing hypotheses exist, for instance Coase's, which states that firms, as a phenomenon, arise due to the transaction costs incurred when hiring on an open market a freelancer to perform a job you need.
If there is an economic advantage to reducing these transaction costs by having the job performed "internally", and this advantage overcomes the intrinsic costs of keeping the job internal, firms will tend to form, and grow larger as the discrepancy between these costs.
So here, rather than "employees cho...
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