https://www.nytimes.com/2000/12/13/business/technology-temp-workers-at-microsoft-win-lawsuit.html
The contractors sued Microsoft because they were pissed off watching employees get rich with stock options while they missed out. That lawsuit changed the contracting landscape a lot. After that, I noticed many clients put up more walls between contractors and their teams, often resulting in us contractors getting treated like dirt. The most annoying thing for me is that many companies now have limits on how long you can contract with them. Their legal departments insist on limiting contractors to 18 months or 2 years, I used to be able to contract for 3-5 years at a good client, Now it is a big hassle if they want to keep me past their corporate deadline.?
Nothing wrong with contracting if you are getting a fair rate that compensates for the lack of benefits. It may be even the best setup for a family where one spouse has family benefits and the other one getting more cash.
If you start as a contractor and prove yourself you may be in a position to negotiate a higher grade permanent position.
To expand on what @intparent describes - not only contractors may have badges of different color but companies may go farther - like Pfizer where the employee’s badge said “Colleague” and the contractor’s badge said “Non-colleague” and the non-colleagues were not allowed into company’s cafeteria. When I was working for a consulting company on a Pfizer project I made sure to treat non-colleagues to expensive lunches that were re-billed to Pfizer
My friend was paid a higher hourly rate when she was a contractor as she had to cover her own insurance, retirement and other benefits. Once she was hired as an employer, she was fine with getting benefits and lower hourly rate.