How New Is the "New Employment Contract"? Evidence from North American Pay Practices

International Labour Review, January 1, 2002 | Go to article overview

How New Is the "New Employment Contract"? Evidence from North American Pay Practices


Levine, David I.; Belman, Dale; Charness, Gary; Groshen, Erica L.; O'Shaughnessy, K. C. How new is the "new employment contract"? Evidence from North American pay practices. Kalamazoo, MI, W. E. Upjohn Institute for Employment Research, 2002. xiii + 263 pp. Figures, tables, bibliography, appendices, cited author index, subject index. ISBN 0-88099-231-X.

The traditional contract of employment, whereby employers rewarded employees' loyalty to the company with job security and stable wages, is widely assumed to have been replaced since the early 1990s by a "new employment contract" under which employers reward each employee's skills according to a value determined by the current labour market. This new system is often described as being more "flexible" in terms of employment attachment and pay. The aim of this book is to explore this apparent change in the employment contract from a new perspective. Whereas earlier studies have tended to focus on rigidities on the "quantity side" of the employment relationship - e.g. changes in job tenure and rates of displacement - the authors here focus on the price side of the contract, investigating whether wage structures have become more flexible.

In 1971 Doeringer and Piore published a notable account of how wages were set in large firms in the United States. They described internal labour markets that contained a number of wage rigidities. In particular, large employers paid higher wages; they paid similar workers similar wages even when employees worked in different regions and labour markets; and relative pay between occupations showed little variation over time. Levine et al. see such facets of the "old" employment contract as hypotheses that can be tested to see whether changes have indeed occurred under the "new employment contract".

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