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

By David I. Levine; Dale Belman et al. | Go to book overview

1
Introduction

During the 1990s, the media announced the death of the “old” employment contract that promised to exchange hard work for employment security. In its place, the media proclaimed the birth of a new implicit contract based more on market forces: Fortune wrote of “the end of traditional notions of corporate loyalty” (Kiechel 1987); Training described “a dwindling sense of job security among middle managers and professionals” (Lee 1987); while Executive Excellence explained there had been a “dramatic breakdown of [the] tacit agreement [to] exchange of hard work and loyalty for security” (Cashman and Feldman 1995). In short, these and many other sources explained that employers no longer reward employees’ loyalty to the company with loyalty and employment security from the company; instead, employers now reward each employee’s skills as valued by the labor market this year.

So far, the evidence of any large-scale shift from the old to the new model is suggestive, but not conclusive. For example, there has been a decline in job stability for prime-aged men (Farber, Haltiwanger, and Abraham 1997). At the same time, average tenure has not declined much (e.g., Farber 1995; Neumark, Polsky, and Hansen 2000). On the one hand, employees report lower average perceptions of job security and believe employers are less loyal than they used to be (Cappelli et al. 1997). On the other hand, Americans did not report lower trust in their employer in 1997 than in 1989 (Kruse and Blasi 1998, pp. 22-23). Several prominent large employers such as IBM and Kodak have weakened their commitment to long-term employment, and human resource executives at many large employers report a shift from the stereotypical old employment contract to the new (Hackett 1996). At the same time, commitments for long-term employment never covered more than a few percent of the workforce (Foulkes 1980). (These dimensions of the old and new employment contract are reviewed in more detail in Chapter 3.)

The employment contract involves the terms of an exchange: quantities of employees’ time for a certain price (that is, the wage). Past research on the employment contract has emphasized rigidities in the

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