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The broken psychological contract: job insecurity and coping.



Recently, many employees have lost their jobs or become fearful about losing the job they currently hold. Their fears may be well founded. During times of economic recession, the restructuring of organizations is prominent (Hartley et al. 1991, 3), which can result in severe organizational changes that include: the shifting of resources, movement of entire companies, elimination of certain jobs, and even company closures (Hartley et al. 1991,4; Sverke and Hellgren 2002,25). These factors have a direct effect on the labor market.

Based upon the information in Chart 1, unemployment rates began to rise in 2008, coinciding with the beginning of the Great Recession that began in December 2007 (Isidore 2008). Chart 1 also shows a significant jump in the unemployment rate of 3.5 percent in 2009, which indicates the severity and significant duration of the current crises. In fact, the economy has not been so damaged since the Great Depression, and most economists see no end to this recession in the near future, indicating unemployment rates will most likely increase or stay elevated for some time (Isidore 2009). An elevated unemployment rate almost certainly affects the labor market in that both employees and employers are likely to have negative experiences during tough economic times. These negative reactions can compromise the delicate balance that exists between an employee's hard work and efforts and an employer's offerings of security and pay, which can be thought of as the "psychological contract" that exists between employees and employers in an organization. This article examines the psychological contract and the resulting consequences of the contract being broken (job insecurity) and offers suggestions for lowering workers' job insecurity, especially during times of organizational change.

The Psychological Contract

A psychological contract includes the expectations between the employee and employer above and beyond any formal contract, which incorporates the beliefs, values, and aspirations of both the employee and the employer (Smithson and Lewis 2000, 681). The psychological contract is based on the belief that "hard work, security and reciprocity are linked" (Smithson and Lewis 2000, 681). From an employee's perspective, the psychological contract guarantees job security, fair wages, benefits, and a sense of self-worth for doing a job well. The employer obtains and retains dedicated workers who perform their jobs well, are satisfied in their jobs, and are committed to the organization. The subjective and time-sensitive psychological contract varies in changing economies or social contexts (Smithson and Lewis 2000, 682). Therefore, an organization that has a strong and vibrant psychological contract with its employees may find that the contract needs to be renegotiated as the economy changes. Also, because of its subjectivity, employees may feel that the psychological contract with their employer is being threatened even when no real objective threat exists (e.g., organizational restructuring, merger with another company, etc.).

Balance is an important part of the psychological contract. An employee must feel that his or her efforts are balanced by what the organization offers (De Witte et al. 2008, 88). If the employee senses an imbalance, the employee feels the psycho logical contract is broken, which can lead to negative effects (De Witte et al. 2008, 88). These negative effects include but are not limited to an employee feeling insecure in his or her job, which is a topic that has received much attention in organizational research.

Job Insecurity

Job insecurity (the overall apprehension about the continuance of one's job) is a subjective phenomenon. Two workers in the same job in the same organization can experience different levels of job insecurity. Job insecurity can lead to negative effects on an employee's health and well-being. Studies have shown job insecurity be ing related to psychosomatic complaints, depression, nervousness, fear, sadness, and guilt, which are all considered to be manifestations of poor mental health (van Vuuren et al. 1991). Also, job insecurity has been shown to be related to critical job-related variables, including job performance, job satisfaction, trust, job involvement, organizational commitment, and turnover intentions (Cheng and Chan 2008; Sverke, Hellgren, and Naswall 2002; van Vuuren et al. 1991).

There have been numerous studies that have looked at the potential precursors to job insecurity. Research has shown that employees who work in temporary jobs, part-time jobs, or blue-collar positions, and who report a lack of communication within their organization or who work in an organization experiencing organizational changes are more likely to report high levels of job insecurity. Other precursors to job insecurity include a worker experiencing role ambiguity and/or role conflict. Role ambiguity occurs when an individual does not know his or her responsibilities and goals for the job (Sawyer 1992), while role conflict occurs when workers experience demands from various sources, resulting in increased uncertainty (Ameen et al. 1995). Workers experiencing role ambiguity or role conflict simply do not know what their obligations are to their employer. In these situations, workers may become anxious because they are unable to fulfill their psychological contract with their employer, resulting in feeling insecure about their job (Ashford, Lee, and Bobko 1989, 806).

Many of these factors are beyond the control of organizations. An organization may not be able to turn every part-time worker into a full-time worker, make every temporary job permanent, convert every blue-collar job into a white-collar position, or be invincible to economic crises. But, these limitations do not mean organizations are powerless in their ability to stave off job insecurity in workers. In fact, organizational research offers suggestions for ways in which job insecurity in employees can be lowered.

Lowering Job insecurity in Workers

Job insecurity may be lowered by strengthening the psychological contract with employees. The key to this strengthening is communication. Kinnunen and Natti (1994, 316) note that providing adequate information to employees can reduce job insecurity. Petzall, Parker, and Stoeberl (2000, 601) suggest that an open dialogue between employers and employees can help stave off the negative effects a recession brings by building trust. It is important for employers to communicate the fairness of organizational decisions and processes because "it is not necessarily what really happens but rather what the workers perceive as happening that will dictate their reactions to management's actions" (Petzall, Parker and Stoeberl 2000, 601, emphasis added). Since job insecurity is a subjective phenomenon, it is important for workers to perceive that the balance between their efforts and the offerings of the organization are set fairly.

Also, both role ambiguity and role conflict (which can both lead to increased levels of job insecurity) can be lessened by an increase in communication between employers and employees. Organizations should be sure that their workers have adequate amounts of information, including knowing what their jobs entail, understanding what is expected of them, and giving them the control they need to do their jobs, especially in ambiguous or transitional settings that occur all too often during times of economic uncertainty.

Increasing Organizational Communication

How can organizations increase communication with their employees, especially during times of economic uncertainty when changes inevitably occur? Lewis, Schmisseur, Stephens, and Weir (2006, 120) systematically analyzed bestselling books on communicating during organizational change and identified strategies and tactics employers can use to help increase the flow of information.

Lewis et al. offer general strategies for communicating and dealing with major changes in an organization (2006, 120-122). The first strategy involves emphasizing participation and empowerment by making workers feel they are part of the change process. Here, leadership in an organization should encourage autonomy and ownership in their workforce. The authors also encourage the use of organizational culture as a tool to enable change, which can be achieved by creating an environment open to new ideas, sharing those ideas freely, and ensuring the workforce is prepared for potential changes. Also, Lewis et al. suggest emphasizing the purpose and vision of the organization and how the resulting changes are part of that vision, accomplished by having leadership consistently link organizational decisions to the overall purpose of the organization. Linking decisions to the overall organizational mission allows employees to understand the organization's direction and how they as employees help the organization meet its goals. Finally, the authors suggest emphasizing communication, which is vital to successful problem solving and organizational change (Lewis et al. 2006, 122). Communication can take many forms, including face-to-face meetings, questionnaires or surveys, or focus groups. It is important that leadership keep open lines of communication with employees at all levels.

The authors also identify specific strategies to emphasize and increase communication in an organization (Lewis et al. 2006, 123-128). The first strategy is to ask for input from workers, which includes listening to those who give their opinions, fostering an environment where workers feel open to voicing their opinions and concerns, and encouraging feedback from various perspectives. A second way to increase communication is to use the informal networks of key employees to disseminate information and deal with any resistance encountered. The authors warn to not underestimate the importance of "front-line" supervisors, middle management, and other employees in getting information out to all employees. These leaders have informal networks and relationships that can help ensure information gets to those who need it.

Also, Lewis et al. suggest that companies disseminate information to all important members of their organization as soon as possible using as many methods as are plausible. The repetition of information can help ensure important information is seen as such. Information should be open and honest, even if it could be considered negative. The authors point out that "any information, even negative information, about change can help alleviate anxiety and reduce some negative reactions to change" (Lewis et al. 2006, 131). Organizations should also be sure to manage both the style and content of communication. The authors suggest the use of appropriate and clear language, specificity, and getting straight to the point. Also, being motivational, e.g., rewarding employees who support any changes to the organization, can help all employees embrace the change that is occurring and foster a positive organizational change culture.

The authors suggest formulating and following a communication plan. These plans vary in their intensity and design depending upon which strategy an organization follows, but the main point is to be organized and intentional in communicating with employees. And lastly, organizations should create and communicate their vision, where appropriate. If communicating with employees can best be described visually, then the organization should do so. But, be sure any visual communication is unambiguous, relevant, and simple. For example, an organization can use newsletters, posters, and stories to help employees understand the vision of the organization in the midst of significant change, as cited by Lewis et al. (2006, 128).


Clearly, job insecurity is abundant among the labor force today. As the economy struggles to recover and unemployment rates stay elevated, workers continue to feel insecure in the continuation of their employment. However, the amount of job insecurity an employee feels varies from person to person because job insecurity is a subjective phenomenon, the result of an imbalance in the psychological contract between employee and employer. Communication is the key to restoring balance and lowering job insecurity among workers, especially in times of change and uncertainty. Effective organizational communication should involve giving direction, promoting participation, emphasizing purpose and vision, and ensuring fairness within the organization. This article offers specific steps or strategies in effectively disseminating information in an organization, including asking for and using employee input, developing and following a plan of action, using employee networks, and rewarding those employees who embrace and utilize the information given. Increasing organizational communication effectively through these techniques will strengthen the psychological contract between employee and employer and most likely decrease job insecurity within the company. Thus, even during rough economic times, organizations can continue to reassure and engage their workforce and in return have motivated, dedicated, and productive employees.

General Strategies for Communication and introduction of Change

General strategies for dealing with major change:

* Emphasize participation and empowerment

* Create a change culture

* Emphasize purpose and vision

* Emphasize communication

Specific ways to increase communication:

* Ask for input

* Use informal networks

* Disseminate information

* Manage the style and content of communication

* Be motivational

* Formulate and follow a communication plan

* Create and communicate vision

Source: Laurie K Lewis, Amy M Schmisseur, Keri K. Stephens, and Kathleen E Weir "Advice on Communicating During Organizational Change "Journal of Business Communication 43.2 (2006): 113-137.


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by Courtney Keim and Amy Wilkinson, Sparks Bureau of Business and Economic Research, The University of Memphis

Courtney Keim

Mrs. Keim received her BA in Psychology from Christian Brothers University and her MS in Psychology from the University of Memphis. She is currently a doctoral student in Experimental Psychology at the University of Memphis, with a concentration in Industrial and Organizational Psychology. Her research interests include occupational health and safety, with an emphasis on stress in the workplace.

Amy Wilkinson

Ms. Wilkinson received her bachelor's degree in Accountancy from the University of Memphis in December 2009, graduating Magna Cum Laude. Currently, she is pursuing a master of science degree in Accountancy at the University of Memphis and will graduate in May 2011. She is a member of the local chapter of Beta Alpha Psi and is actively pursuing her CPA license.
Chart 1. U.S. Unemployment Rates, 2000-2010

2000    4.0
2001    4.7
2002    5.8
2003    6.0
2004    5.5
2005    5.1
2006    4.6
2007    4.6
2008    5.8
2009    9.3
2010   10.0

Source: Bureau of labor Statistics.

Note: Table made from line graph.
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Author:Keim, Courtney; Wilkinson, Amy
Publication:Business Perspectives
Geographic Code:1USA
Date:Sep 22, 2010
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