I like your thinking but . . .

Assuming the employees could meet the legal definition of a contractor, the employees would require huge pay increases to compensate for the new taxes they would have to pay, the cost of health insurance as an individual vs group, the cost of the "tools" to do the job, etc.

But the largest barrier is the employer has to relinguish control of how the job is done. Not too many employers could do that for most jobs. And honestly, not too many employees could handle that kind of "freedom" to direct their own work.