Employee headcount is also evaluated less favorably when potential investors evaluate the company's health. They're implicitly seen as a promise to continue pay

Employee headcount is also evaluated less favorably when potential investors evaluate the company's health. They're implicitly seen as a promise to continue paying them in the future, whether that's materially different from what the company does with contractors or not. And some of that is probably fair. As an employee, a layoff of a bunch of employees is a lot more troubling than a bunch of contractors not having their contracts renewed.