Do Recessions Impact Psychological Contract Between Organisations And Employees?

The economic factor, represented in the global financial crises, hold considerable influence over the psychological contract in the employment relationship between the employer and the employee. To this end, this portion of the essay will further discuss and elaborate upon literature from various researchers. Supporters of the concept that the economic factor does not have a noticeable effect on the psychological contract between the employer and the employee hold various opinions. Some claim that the effect of the global financial crises on the psychological contract is very minimal (Marchington and Wilkinson, 2016). Marchington and Wilkinson (2016) uses their research finding to suggest that although some employees have been dismissed from their jobs by few companies, it can be noticed that some companies, who are hiring qualified professional employees, have successfully retained their workers for long period. It must be pointed out that the psychological contract does not certainly indicate that workers can anticipate to remain in their present work company for lifetime within the same organisation, nor did it indicate that worker whose performance is low would be retained on (Marchington and Wilkinson, 2016). However, there have been some cases where organisations have reached and arrangement with their employees that each person have decreased salary and work less hours, instead of keeping regular working hours and salary for some employees whereas others are been dismissed form their current jobs. Equally, some employers have provided their employees with unpaid or voluntary vacations and sabbaticals in order to cut the cost of the employees’ salaries (Marchington and Wilkinson, 2016). These are practical ways to deal with the the global financial crises since they have let organisations honour the psychological contract between them and their employees, keep their employees at their jobs, provide jobs for those that would have been terminated.?Similarly, Roche and Teague (2012) research findings indicate that the influence of the economic factor on the psychological contract is marginal, and that organisations generally have achieved a good level of adaptation in coping with the global economic crisis and have moved far away from performing job reduction.

The point has been extended to include the positive effect of the economic factor on the psychological contract following the global financial disasters. Marchington and Wilkinson (2016) explain that the degree of loyalty among the employees has significantly improved following the consultation with employees about the aforementioned actions to retain them, despite the condition of the economy at the time, which have proven to be profitable in a long term period. As a result, not only the economic factor has observed to not have considerable impact on the psychological contract in the employment relationship between the employer and the employee, but it has been noticed to enhance the employment relationship and hence the psychological contract.

Thus, it might be true that the economic factor has been observed to have a positive noticeable impact on the psychological contract between the employer and the employee. However, this does not necessarily exclude other appreciable research evidence related to the impact of the economical context. Although Marchington and Wilkinson (2016) views seem persuasive, there are strong opposing arguments that are even more convincing. It has been acknowledged in the academic literature that the economic factor influence the psychological contract between the employer and the employee negatively. In their research findings about psychological contract, Guest et al. (2003) argue that the global financial situation has negatively affected the psychological contract via redundancies. Equally, Cooper (1999) discuss that the first years of the last decade have been subject to the impact of the global economic crises and employers efforts to cope with it. Employers all over the globe have intensely performed job reduction. The ugly truth faced by many employers have been large organisational change, continuous restructuring and, constant job redundancy. Nowadays, a lot of companies are smaller, with less employees performing more tasks and experiencing much less job security. As a result, the psychological contract between the organisations and workers with regards to long permanent work for job well done have been really disappeared, since more and more workers no longer consider their work secure and many others are involved in part-time job. Additionally, in a study of 400 organisations in 17 different nations having more than 8 million employees, the job security of employees have considerably dropped due to the change in the nature of psychological contract between employers and employees as a result of the economic factor (Cooper, 1999). Furthermore, Siu (2001) argue that the global economic crises have negatively affected different organisations. Employers have performed different human resources management practices to deal with the economic crisis. They have stop recruiting new employees and limited employees overtime for the current employees to deal with drops in sales profits, which in turn have negatively impacted the psychological contract. Another study has revealed that the changes in the worldwide economy in the few past years have considerably affected the relational component of the psychological contract and the employment relationship made by the organisation and the employee. The corporate downsizing and job restructuring plans mostly have contributed to the change of the work relationship between the employers and the workers. It also have been indicated that the American companies as of today have one of the most increased stress, workload and decreased commitment and job security, which therefore effect the psychological contract (De Meuse et al., 2001). As a result, the global economic crises have forced the companies all around the globe to perform a massive corporate downsizing and job restructuring during the past few years which resulted in a lot of job being made redundant. This therefore has negatively affected the economic factor, which in turn has negatively impacted the psychological contract and the work relationship between employers and employees (De Meuse et al., 2001).

Conclusion

To conclude, some studies suggest that not only the economic factor has observed to not have considerable impact on the psychological contract in the employment relationship between the employer and the employee, but it has been noticed to enhance the employment relationship and hence the psychological contract. However, it is also worth reiterating that the economic factor has a negative impact on the psychological contract and the work relationship between employers and employees.