A Theory of Employment Systems: Micro-Foundations of Diversity

A Theory of Employment Systems: Micro-Foundations of Diversity

A Theory of Employment Systems: Micro-Foundations of Diversity

A Theory of Employment Systems: Micro-Foundations of Diversity

Synopsis

A Theory of Employment Systems considers why there are such great international differences in the way employment relations are organized within the firm. Taking account of the growing evidence that international diversity is not being wiped out by 'globalization', it sets out from the theoryof the firm first developed by Coase and Simon, and explains why firms and workers should use the employment relationship as the basis for their economic cooperation. The originality of the employment relationship lies in its flexibility. It gives managers the authority to organize work, but it alsoestablishes limits on employees' obligations. The author argues that these limits are provided by four basic types of employment rule. Which one predominates in a given environment is the source of international diversity in employment relations. Drawing upon evidence from the US, Japan, France, Germany, and Britain, the theory is extended toshow why such diversity extends deep into key areas of human resource management, such as performance management, incentive pay, and skill development. It also explains why the open-ended employment relationship continues to dominate work despite the growth of market-mediated work relations.

Excerpt

Two great innovations lie behind the rise of the modern business enterprise: limited liability and the employment relationship. the first revolutionized company finance, opening up a vast new supply of capital. the second has revolutionized the organization of labour services, providing firms and workers with a very flexible method of coordination and a platform for investing in skills. Today, nine-tenths of workers with jobs in advanced industrial countries are engaged as employees. Despite the sometimes rapid growth in contingent employment, there is no evidence that the open-ended employment relationship is about to lose its preeminence.

The key to the employment relationship is that it enables management to decide detailed work assignments after workers have been hired. Given the huge difficulty of anticipating the problems to be resolved in providing customers with the goods and services they desire, such flexibility is a formidable advantage. Much of the debate about productivity in recent years has focused on how to keep workers as fully occupied as possible, but it has neglected the other problem, of how to be sure that the necessary workers will be available when new customer orders arrive. This is addressed by the employment relationship which builds on workers' agreement to be available to undertake certain types of work as and when their employer directs.

There is one twist to the story, however: few workers would agree to giving their employers unlimited powers over work assignments. the tricky nature of work assignments is of more than academic interest. in their monumental study of workplace management in the us, Slichter and his colleagues (1960 : 576) observed that 'a “job” is an arbitrary concept'. They warned that 'jobs must be defined to the mutual satisfaction of the parties to avoid continuous problems in employee classification, work assignment and transfer'. the rise of the employment relationship owes much to the development of job rules that square the apparent circle of providing employers with flexible job

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