THE CHANGING NATURE OF THE PSYCHOLOGICAL CONTRACT

Many commentators have delivered warnings about changes to the psychological contract that are not all advantageous to employees. And the nature of the psychological contract is changing in many organizations in response to changes in their external and internal environments. This is largely because of the impact of global competition and the effect this has had on how businesses operate, including moves into ‘lean’ forms of operation.

The psychological contract has not been an issue in the past because usually it did not change much. This is no longer the case because:

● business organizations are neither stable nor long-lived – uncertainty prevails, job security is no longer on offer by employers who are less anxious to maintain a stable workforce – as Mirvis and Hall (1994) point out, organizations are making continued employment explicitly contingent on the fit between people’s competences and business needs; 

● flexibility, adaptability and speed of response are all-important and individual roles may be subject to constant change – continuity and predictability are no longer available for employees; 

● leaner organizations mean that careers may mainly develop laterally – expectations that progress will be made by promotion through the hierarchy are no longer so valid; 

● leaner organizations may make greater demands on employees and are less likely to tolerate people who no longer precisely fit their requirements.

But, more positively, some organizations are realizing that steps have to be taken to increase mutuality and to provide scope for lateral career development and improvement in knowledge and skills through opportunities for learning. They recognize that because they can no longer guarantee long-term employment they have the responsibility to help people to continue to develop their careers if they have to move on. In other words they take steps to improve employability. Even those that have fully embraced the ‘core–periphery’ concept may recognize that they still need to obtain the commitment of their core employees and pay attention to their continuous development, although in most organizations the emphasis is likely to be on selfdevelopment. 

But this could hardly be called a balanced contract. To what extent do employees in general have ‘the right to demand interesting and important work’? Employers still call the shots, except when dealing with the special cases of people who are much in demand and in short supply. In Britain, as Mant (1996) pointed out, ‘people often really are regarded as merely “resources” to be acquired or divested according to short-term economic circumstances’. It is the employer who has the power to dictate contractual terms unless they have been fixed by collective bargaining. Individuals, except when they are highly sought after, have little scope to vary the terms of the contract imposed upon them by employers. 

Perhaps one of the most important trends in the employment relationship as expressed by the psychological contract is that employees are now being required to bear risks that were previously carried by the organization. As Elliott (1996) notes: ‘The most profound change in the labour market over the past two decades has been the massive shift in power from employee to employer. This has not only meant that workers have had their rights eroded, but also that much of the risk involved in a business has been shifted from capital to labour.’