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Psychological contract and the financial crisis

Essay 2012 16 Seiten

VWL - Arbeitsmarktökonomik



Introduction – Psychological Contract

Nursing Profession - Characteristics

Greek reality – Researches on public health care employees

Nursing – Psychological Contract – International Research

Reference List

Introduction – Psychological Contract

A key example of drastic change in today's global working environment with important consequences for employees since it the diversification of all aspects of work is the transformation of the "psychological contract" among employees and their organizations. As "psychological contract" is defined "the belief that a person for the terms and conditions of a mutual agreement transaction between him/her and another participant, in this case between the employee and the organization» (Rousseau, 1995). More specifically, the term "psychological contract" refers to mutual obligations, values, expectations and desires of employees from their employers, beyond any formal employment contract (Linde, Schalk & Linde, 2005).

In other words, it is a transaction relationship, where employees and employers have certain expectations about their mutual obligations, which are, of course, different for each employee and significantly affect what each side believes is its obligation. The psychological contract has been characterized in a various ways, for example, as "unstable, subjective, unconscious, indirect, alive, something that employees know it exists, only when it is changed» (Appelbaum, Gandell, Yortis, Proper & Jobin, 2000: 657).

Despite the fact, however, that the psychological contract is not based on written rules, it is however, a powerful factor determining employees behavior their workplace (Schein, 1980). The

psychological contract had previously been characterized by stability and safety of employees concerning their jobs,the support from the organization they worked for and the devotion they felt towards it (Sahdev, 2004). Nowadays, it appears that employees remain at their work "conditionally» (Cranwell-Ward & Abbey, 2005) since today's ever-changing working conditions, the magnitude of change of the terms of the "psychological contract" is tremendous as employees feel to have less support from their organization, to feel less secure in their jobs, less healthy with more stress and less satisfied with their work.

Rousseau and Wade –Benzoni(1994) identified four types of psychological contracts i.e. transactional, relational, balanced and transitional.

The transactional contract is when the employee has a job of limited duration where s/he has to perform certain fixed or limited tasks. On the other hand, the employer offers only limited employment without any promises for training or development (Rousseau, 2000). The employee is not obliged to stay in the firm and the employer is obliged to keep the employee for a certain period of time and there are no promises for future commitments.

The other type of psychological contract is the relational contract. In this type of contract, relationships are based both on financial rewards and emotional commitment. The employee has to do what the firm wants him to do and the employer is obliged to offer him a stable salary and long-term employment. The employee has to exhibit loyalty and commitment to the company’s interests and cooperate well with his colleagues (be a good organizational citizen). On the other hand, the employer should also be interested in the well-being of employees and their families (Rousseau, 2000).

The third type of psychological contract is the balanced contract. A balanced contract is an open arrangement between the employee and the employer whereas both learn and are committed to the employer’s success (Sutherland and Wocke, 2008). The employee has to develop marketable skills and the employer agrees to enhance the employee’s long-term employability both within the company and outside of it. The employee has to develop his knowledge and skills in order to offer added value services to the employer and the employer has to offer the necessary career development opportunities to the employee. The work is challenging since the employee has to perform many diverse and demanding goals which are eligible to changes in the future. The Company has to help the employee to remain competitive and provides them with adequate training in order to meet the new goals (Rousseau, 2000).

Finally, the last type of psychological contract is the transitional contract. In this case, the breakdown of all contracts take place, there are no commitments, on the side of the employer for future employment and there are little performance demands (Rousseau & Wade-Benzoni, 1994).

The employee mistrusts the organization since s/he believes it sends mixed messages that are also inconsistent. On the other hand, the employer mistrusts also employees and keeps important information secret. The employee does not know which are his/her obligations to the organization and the employer measures the extent of employee’s uncertainty regarding employer’s future commitments (Rousseau, 2000). The relationship is also eroded since s/he expects to receive less returns to his/her contributions to the organization compared to the past. Employer has reduced salaries and perks thus employee’s quality of life is eroded compared to the past (Rousseau, 2000).

Further to the above typology, Watson (1997) introduced “ideological contract” and suggested that someone’s ideological position (e.g. being communitarian or liberal) affects employment relationship so it leads to the creation of an ideological psychological contract. Other researchers such as Thompson and Bunderson (2003) referred to “ideological currency” within the psychological contract and did not consider it as a different type of contract. According to them, ideological currency consists of the commitments an employee makes to follow a valued cause. This employee commitment contributes to the organization’s ability to follow an ideological objective. Their model is very similar to Watson’s concept and they suggested that this commitment to a cause increases job satisfaction, loyalty and commitment to the organization.

Watson (1997) suggested that the consideration of the community’s welfare and the ability of the employee to be part of the decision making process are very important. He also suggested that the employee’s behavioural responses are very much related to his/her liberal-communitarian ideological orientation.

The employee’s ideological orientation also influences his/her feelings of trust and fairness in the organizational context and it is apparent that when somebody’s view of economic social contract is violated then this will result in behavioral outcomes that are not desired by the organization and may be harmful for someone’s quality of life.

The changes that modern environment has brought to employees’ lives and are accentuated by financial crisis are: compulsory retirement and unemployment of at least one of the two members of the family. In the past, changes included the occurrence of dual income households and the work-life balance something that seems not to be feasible at the current period. Guest (2004: 542-544) provided a number of factors that affect the traditional employment relationship and these are the following:


Flexibility and fragmentation of the workforce in many premises.

Urgent need for change

Need to have a work-life balance

Trade unions and working contracts decline.

Decline in collective orientation and increase of individualism (the communitarian vs liberatarian approach of Watson)

According to Tornow (1998:98), there are the following changes in the working environment:

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Apart from the above in the private and public sector there is the downsizing of organizations and the resulting unemployment. Especially, Muchinsky (2003) regarding downsizing, he suggested that this is one of the most important violations of a psychological contract whereas other researchers such as Singh (1998) and Turnley and Feldman (1998) supported exactly the same.

In regard of these changes, Hendry and Jenkins (1997) suggested that these changes affect job satisfaction and motivation, more specifically, they contribute to a significant reduction of them. As a result employees felt more stressed since there were continuing threats of losing their position (as it is happening now in Greece). These continuous threats, the researchers suggested, affect employees’ trust to the organization.



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psychological contract psychology human resources management crisis financial management employees



Titel: Psychological contract and the financial crisis