THE CHANGING NATURE OF THE EMPLOYMENT CONTRACT
| Published date | 01 August 1995 |
| Date | 01 August 1995 |
| DOI | http://doi.org/10.1111/j.1467-9485.1995.tb01164.x |
| Author | David Rea,William Brown |
Scottish
Journal
of
Political Economy.
Vol.
42.
No.
3,
August
1995
0
Scottish Economic Society
1995.
Published by Blackwell Publishers Lid..
108
Cowley Road,
Oxford
OX4
IJF.
UK and
238
Main Street. Cambridge,
MA
02142,
USA
THE CHANGING NATURE
OF
THE
EMPLOYMENT CONTRACT
William Brown and David Rea’
I INTRODUCTION
The radically altered nature of employment relationships is an outstanding
feature of the British labour market at the end of the Twentieth Century. Its
final two decades will have left few jobs unaffected and the practical content of
most employment contracts will have undergone major change. This paper
discusses
this
change
as
part of the wider transformation in the way that labour
has come to be managed and organised.
Economic analysis
is
inclined to understate the distinctive nature of the
employment contract and of the institutions that regulate it.
The
paper starts by
discussing the contract in order to provide a basis for an account of the
substantial changes that have occurred in its regulatory institutions. Managerial,
legal, and market developments have altered both the relationship between
labour and its employers, and the organkational capacity of labour itself. We
conclude by asking how far there has been a fundamental alteration in the
conduct of collectivism in the labour market.
11 THE INCOMPLETE NATURE
OF
THE
EMPLOYMENT CONTRACT
All economic interaction is mediated by a process of contracting. A contract is a
set of rules which defines the mutual obligations and rights which are necessary
to govern
an
exchange.
A
normal sales contract is a ‘complete contract’ because
there is an
ex ante
agreement on a set of rules which comprehensively defines
the rights and responsibilities of both parties for the whole life of the exchange.
This
is possible because the exchange is relatively simple and predictable. The
employment contract, by contrast, is ‘incomplete’. There are both
ex ante
and
ex post
agreements and rules. The
ex ante
agreements fail to cover all relevant
future rights, responsibilities and contingencies because the parties expect that,
once employment has got under way, and gaps in the contract are discovered,
they will amend and adapt the contract
expost.
The incompleteness of the employment contract reflects the fact that there is
a high level of uncertainty about the future conduct of exchange (MacNiel,
1979).
This
uncertainty arises from
two
distinct features of employment. First,
its nature is such that it is difficult and usually undesirable to specify the precise
conduct of the task that will
be
required; it can be left to subsequent supervision
(Simon,
1955).
The second feature is the long term nature of most employment.
‘Faculty
of
Economics
and
Politics,
University
of
Cambridge.
363
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