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Why Firms Outsource Their Human Resources Activities: An Empirical Analysis

In this paper, we develop and estimate an explanatory model of Human Resources Outsourcing. Six HR activities are analyzed: Payroll, Benefits, Recruiting, Training, Labor Relations, and Human Resources Information Systems. The determinants of outsourcing are drawn from two fields: the field of organizational analysis and strategy formulation, and that from transaction-cost theory. Our results indicate that the drivers of HRO are rather specific to each type of activity. The transaction-cost determinants appear to play a particularly important role in the HRO decisions. In particular, the prior experience of the organization with outsourcing of other functions, the uncertainty of the transaction, and the presence of a union have a commanding influence.
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