Not unlike how the GDPR resulted in banners everywhere, because the law stops short of banning contracting, companies have, of course, sought the optimal just-up-to-the-edge balance.
The biggest two reasons it matters (i.e. two biggest disincentives from just hiring contractors) are healthcare and quarterly reports. Healthcare provision is very expensive, even amortized across the employees in a company, and TVCs get no healthcare from the client company. And the client company can grow and shrink TVC contracts all day long without having to tell shareholders they went through a mass hiring cycle or a layoff cycle.
It's weird that we look down on people acting like massive pricks to save money in their personal lives. But once you wrap a business around them then most people don't seem to care.
As I grow older it bothers me more. Some classes of people have a facade where it's socially acceptable to be assholes, but other people, well, that's a moral failing. The US has a new religion, and it's worse than the last one.
The biggest two reasons it matters (i.e. two biggest disincentives from just hiring contractors) are healthcare and quarterly reports. Healthcare provision is very expensive, even amortized across the employees in a company, and TVCs get no healthcare from the client company. And the client company can grow and shrink TVC contracts all day long without having to tell shareholders they went through a mass hiring cycle or a layoff cycle.