This idea of temp-to-hire places a disproportionate amount of risk on the employee to be hired -- they will need to leave their current job (where they likely have decent job security) in order to attempt being hired at the new company.
In the real world, people generally don't put in their notice until they've accepted an offer at another company.
It also abuses the system by not paying the going short term contractor rate some non tecnicaly savvy companies think that wanting some one to work a 4-6 month contract and only pay you as if you where an employee and not self employed rate.
In the real world there are a lot of people who don't currently have a job. Sure unemployment percentage is low (even if we discount accusations that the percentage is miscounted), but there are still a lot of people looking for a job. When someone doesn't have a job temp-to-hire isn't nearly as risky because if it doesn't work out you are back where you were - sometimes with renewed unemployment benefits.
Actually your downside is a side benefit to employers: you don't risk hard feeling by hiring somebody away from their old job if you latter need to work with them. (these shouldn't happen, but they do)
Generally people who would make good employees are already employed (assuming there is demand for their labor). Hiring unemployed people is usually targeting the bottom of the market, or finding diamonds in the rough, which is risky.
I'm not sure if this is actually the case. I'm starting to meet more and more people who aren't that keen on amassing wealth, and they tend to spend decent stretches of time unemployed (traveling, working on side projects, bootstrapping companies etc)
Temp to hire wouldn't be so bad, if there was a guarantee from the company that they will either hire you, or replace you with another contractor with the intent to hire them. In that case it is about the same as having a 6-month probationary period.
I wonder if there are statistics on contract to hire positions that don't get hired, and out of those that don't, is it because the person really didn't work out or was there really no intent to hire to begin with?
As a point of reference, where I work they almost always to contract to hire. I've seen a few contractors leave (they found other work), some didn't get converted to full time (those weren't actually to-hire though, and specifically short-term, although in one case a contractor was brought back twice to fill in). But in almost every other case the person was hired eventually (even if it took a couple extra months to push it through HR).
Maybe my view is warped because I don't work for an SV startup, but I would consider anyone with less than 5-10 years "entry level". I rarely see job ads for anything except interns/entry level and "senior engineers". Someone with 3-5 years of experience probably has some job security but definitely doesn't count as "senior" in my mind.
I don't think it's just SV, I've seen job postings in Boston for 3+ years experience and it was listed as a senior engineer. I think it's because many companies try to use titles as compensation. I've gotten the "senior engineer" title 3 times in my career. Two of those times it was given to me in the same conversation where I was told there was going to be no raises that year.
In the real world, people generally don't put in their notice until they've accepted an offer at another company.