I think there is something to be said for classical Liberal ideas / Libertarian ideas for how to run a business. Adam Smith spoke about how self-employment allows people's careers to grow over time and not do mindless work for their "boss". And I shared a PBS article recently about being paid to look busy: http://www.pbs.org/newshour/making-sense/ask-says-notorious-occupy-academic-job-exist/

I think it's better for people to be doing something for MANY clients, and have a growing network, portfolio and experience. The startup should be one client of many, that compensates for work they do for the startup, e.g. stock options vested over time. But the people don't work full time on the startup. They have personal and professional lives that only partially intersect with it. As our motto goes, "People live lives. Companies create products." The company is an entity that should have capital to compensate people, or attract them to do pro bono / open source contributions.

Replacing employees with contractors is also cheaper for companies, as expensive lawsuits about insurance for employees, and dismissing employees are eliminated, this is especially true in Europe where there are far stronger protections for full time employees: http://www.adamsmith.org/sites/default/files/research/files/self-employment.pdf