Understanding employment relationship in Indian organizations through the lens of psychological contracts
| Date | 16 August 2011 |
| Pages | 551-569 |
| DOI | https://doi.org/10.1108/01425451111153907 |
| Published date | 16 August 2011 |
| Author | T.N. Krishnan |
| Subject Matter | HR & organizational behaviour |
Understanding employment
relationship in Indian
organizations through the lens
of psychological contracts
T.N. Krishnan
Indian Institute of Management Kozhikode, Kozhikode, India
Abstract
Purpose – Most research on employment relationship has been done on the Anglo-Saxon context, the
results of which may not be totally valid for India. The emerging employment relationship in India is
best viewed through the lens of psychological contracts. Psychological contract has significant
influence on valuable workplace outcomes. This paper seeks to propose a model for understanding
employment relationship through the concept of psychological contracts.
Design/methodology/approach – With the help of published case studies in the Indian context
and based on social exchange theory, this paper proposes a model wherein trust mediates the
relationship between the perception of breach of the psychological contract and HR systems.
Findings – As more and more employees come under non-unionized workforce, the non-formal
aspects of employment through the lens of psychological contracts becomes an important lever to
manage employment relationships. The model presented in this paper suggests that depending on the
HR system an organization adopts, the perception of breach of psychological contract gets affected.
Based on the notion of consistency of HR practices, it is argued that HR systems across organizations
form two archetypal extremes and each of these give rise to a different perception of breach of
psychological contract.
Originality/value – As HR managers are faced with a range of choices in implementing HR
systems, it becomes difficult to narrow down the available options. This study would provide some
guidelines to do so, by highlighting the process through which HR systems impact the perception of
breach of psychological contracts and the resulting employment relationship.
Keywords Employment relations, Psychologicalcontracts, HR systems, Organizational trust, India
Paper type Research paper
Introduction
While the nature of employee-employer relationship is well researched in the Western
literature (Cappelli, 1995), it is very hard to present a comprehensive system of employee
relations in India. The Indian industrial relations system is characterized by three
disparate economies – theold formal economy of heavy industry and public enterprises,
the informal economy consisting of casualised workforce and small traders and the new
formal economy of IT and services sector (Bhattacherjee and Ackers, 2010). Whil e the
organized workforce reflecting the formal economy is a small proportion of the overall
workforce, the study of employment relationship has been focused on this sector because
of the strong union presence and politico-legal institutional framework associated with
this. The informal or “unorganized” workforce is an overwhelmingly large portion of the
workforce but not covered by these institutional framework and is a fundamental
challenge facing Indian industrial relations today (Hill, 2009). Organizations in the new
The current issue and full text archive of this journal is available at
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Psychological
contracts
551
Received 10 August 2010
Revised 30 March 2011
Accepted 10 May 2011
Employee Relations
Vol. 33 No. 5, 2011
pp. 551-569
qEmerald Group Publishing Limited
0142-5455
DOI 10.1108/01425451111153907
economy have limited roles for the union and state but there are some indications that
this may be changing (Bist, 2010).
In post-independent India, the development strategy was designed to foster
capitalist development under the leadership of the state. Its success demanded peace
and productivity. State regulations and the logic of industrial peace determined
the institutional framework in the industrial relations system (Sundar, 2010). Unions
have traditionally enjoyed a strong support from the government through political
party affiliations but many often this has undermined the possibility of developing
strong grassroot-based constituency and experience in collective bargaining (Hill, 2009;
Bhattacherjee and Ackers, 2010). The unions owed their social significance to their
ability to articulate shared experiences and growing socio-economic needs of the
workers with due recognition to their dignity as citizens in a democratic society (Sheth,
2001). During the early years of state-driven industrialization, the paradigm that
dominated employment relations was paternalistic with the premise that the state
knew the workers’ needs more than the private employers or workers themselves
(Bhattacherjee and Ackers, 2010). But the overall economic situation of the country was
not favourable either for the func tioning of participative instit utions or for
union-management collaboration. Participative requirement was not such a necessity
in the pre-reform days as increase in productivity was not at a premium. The reforms
were expected to pave the way for a fundamental shift towards market mechanism for
allocation of resources and influence decision making. They amount to a shift from a
model of accumulation based on the domestic market and import substitu tion to one
oriented towards the international market (Papola and Sharma, 1996).
With the liberalization of Indian economy in 1991, a number of private players started
carving a major role in the economic output and simultaneously governments both at the
centre and state levels started assuming a smaller role in running businesses. It is rather
coincidental that the past couple of decades of economic and structural reforms in India
have run parallel to a technological progression especially due to advancements in
information and communication technology. Increased domestic and foreign
competition resulting from the economic reforms induced domestic manufacturers to
improve efficiency and bring into use advanced technologies on a larger scale (Goldar
and Kumari, 1999). The subsequent break down of trade barriers, globalization and
well-accepted management ideas such as TQM on quality, JIT, computer-integrated
manufacturing and lean production have served to magnify the impact of technology on
employment relationship globally and India in particular (Krishnan, 2010). As the
technologies in manufacturing and service technologies continuously develop, there is
an increasing pressure on the organizations to implement team-based work designs.
Hence, the technological changes almost always are followed by a corresponding change
in the essential work skills required of the workforce (Krishnan, 2010).
A growing trend has been the emergence of the knowledge worker and shift to service
jobs from manufacturing. In a study of employment in organized manufacturing sector
in India, it was found that even though real gross value added has grown at 7.4 per cent
per year during 1981-2002, employment of workers increased only by 4.3 and most of
this growth happened in the early part of the 1990s while the latter half of 1990s and
early part of the last decade have shown a reducing trend in organized manufacturing
sector employment (Nagaraj, 2004). At the same time, employment in organized services
sector has been picking up in the latter half of 1990s and early part of the last decade
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