The irreducible incompleteness of the employment relationship

It is critical to consider carefully not only the nature of the object being exchanged but also the circumstances of the exchange. The ER is based on a more or less formal employment contract. According to contract law, contracts may be defined as ‘agreements under which two parties make reciprocal commitments in terms of their behaviour – a bilateral coordination arrangement’ (Brousseau and Glachant, 2003: 3). (Note the moral flavour of ‘reciprocal commitments’) It is consensual in economics that the ER is pervaded by two major sources of uncertainty or incompleteness. First, no employment contract can ever be complete, comprehensive, because no one can fully specify all contingent possibilities. Second, the promises in terms of behaviour that are implicit in the contract are largely unenforceable.

The incompleteness of the ER makes the exchange of work not a market exchange but a ‘social exchange’, i.e. one that involves a series of interactions that generate informal, unspecified, obligations (Cropanzano and Mitchell, 2005).

 

LOPES, Helena (2018). The moral dimensions of the employment relationship: Institutional implications. Journal of Institutional Economics, 14(1), 103-125.