A Theory of Employment Systems: Micro-Foundations of Societal Diversity

Abstract

‘A theory of Employment Systems’ explains why there are such great international differences in the way employment relations are organized within the firm. It takes account of the growing evidence of international diversity. It sets out from the theory of 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 also establishes limits on employees’ obligations. Neither Coase nor Simon dealt with these limits, yet without them, no one would be prepared to work as an ‘employee’, and so there would be no employment relationship, and firms would not exist as employing organizations. The book argues that these limits are provided by four basic types of employment rule. Which one predominates in a given environment is the source of societal diversity in employment relations. The theory is extended to show 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. The book covers evidence from the US, Japan, France, Germany, and Britain.