Background: The current financial crisis has led to significant job losses, especially in a number of industries from banking to insurance, estate agency and recruitment. Also over the past decade most of the organisations have been participating in activities such as restructuring, downsizing and merging with higher frequency. In principal, job losses are a violation of the psychological contract that an employer is expected to maintain with employees. In particular, it is a violation of the employers' obligation to provide employees with job security. Maintaining a strong psychological contract is important because it can lead to positive employee outcomes, whilst a violation of the contract leads to reduce trust and lower productivity, but also a significant reduction in organisational commitment, illustrated by higher levels of absenteeism and employee turnover. In theory, the current job losses that firms have been witnessing as a result of the financial crisis should significantly lower organisational commitment. However, literature is emerging to suggest that employees no longer expect a job for life, which implies that job security is no longer as significant an issue as it once was. At the same time, it may be possible that if employees do not blame the firm for job losses, but wider economic problems outside of the firm's control, this would not affect organisational commitment as much. This study would examine how such job losses have affected the organisational commitment of employees, and the implications that this has for Human Resource Management (HRM).
Research Aim: To examine the impact of job losses on organisational commitment and the implications for HRM.
Research Objectives: In order to answer this research aim, the following research objectives should be addressed:
To highlight the impact of the financial crisis on job losses in the UK.
To critically discuss the literature on the psychological contract, with particular focus on job insecurity, as well as the different dimensions of organisational commitment.
To investigate the impact of job losses on two dimensions of organisational commitment - performance and membership - in a case study organisation.
To reflect on the implications of the findings for HRM.
To provide the case study organisation with recommendations to better manage the impact of job losses on organisational commitment
LITERATURE REVIEW
Financial Crisis and Job Losses: One of the key reasons for job losses is financial crisis. In order to establish we need to understand financial crisis. In this section what are the impacts of the financial crisis in terms of job losses will be briefly discussed. This section will also highlight those industries within the economy that have been the worst hit. This will help justify the choice of case study organisation that will be used as the basis for the research.
The World is presently facing a significant economic challenge as a result of current economic crisis. The economic crisis, which is experienced by the most of the developed countries and in specific the UK, was due to the collapse of US sub-prime mortgage and the reversal of the housing boom crisis in August 2007 (Anup Shah, 2009). London's leading market shares dropped by 5.5 pc, with the Stock Exchange 100 index losing more than 323 points in January (The Times, 2008). Slowdown of U.S housing market knocks down the banking sector. According to HSBC, more people are not repaying because of the slowdown in the housing market (BBC, 2007). The present financial crisis has led to a serious hold back in economic growth and to significant loss of jobs. As a result of crisis, public borrowing has been increasing in all countries because of economy shrink (BBC, 2010). But some countries, like United States and United Kingdom, were rigorously affected as they already had large shortfall and in a position to spend heavily to recuperate their banking sector. According to WASHINGTON (MarketWatch) around 5.1 million jobs were lost due to this recession and employees who lost their job were in deep agony (Rex Nutting, 2009). The ILO anticipates that there could be a dramatic rise in job loss worldwide and in the number of working poor; it has been estimated that worldwide unemployment level could increase from 18 million to 30 million employees in 2009, and more than 50 million if the situation persists to aggravate (Azfar Khan et al., 2009). Here's payroll employment, contrasted to recession during 1981-82:
Source: Susan Woodward and Robert Hall, Financial Crisis and Recession
The LGA report said the construction and manufacturing industries are worst hit by this economic crisis (BBC, 2008). Effectiveness index survey has been conducted to analyse how the economic downturn has affected IT projects in various industries. According to the results the manufacturing industry was worst hit with 66 percent of organisations delaying or cancelling the IT projects (Business Wire, 2009). Especially automobile industries are worst hit by the recession. The industry has shown more than half a million employees the exit, in order to meet the challenges and survive the financial crisis. The US financial slump felt within the automobile industry point towards a steep fall in payrolls as the unemployment rate climbs up (Buzzle, 2009).
2.2 Psychological Contract (PC) and Job Security: In this section definition and core aspects of the psychological contract will be discussed, since these highlight the obligations that employers and employees owe each other. Focus will be placed on understanding job security (or rather, job insecurity), and the impact that this has on employees.
Psychological contract does not have a universally accepted definition, but most of the definitions tend to explain the understanding of the obligations that employers and employees owe each other. It is often distinguished with legal, formal employment contract that specifies the responsibilities, duties and obligations of employing organisation and employee in the employment relationship. "Psychological contract" refers to the mutual understanding and relationship between an employee and an employing organisation (Levinson et al., 1962). The PC concerns most of the practitioners and researchers alike, as both look for mechanisms through which they can sway positive employee attitude and behaviour. Even though the definition of the PC remains challenged (Anderson & Schalk, 1998), the acknowledgment that employment relationship is inclined by official and unofficial aspects which can lead to both implicit and explicit expectations, which has led to insights into the aspects affecting employment expectations, relationships and obligations; and the negative effects for employee performance, attitudes and behaviours when PC is violated. The existence of a powerful, relational PC would seem to be very identical to a high level of organisational commitment. Literatures have indicated a strong relationship between the violation of a PC and low level of organisational commitment (Lester et al., 2002). Most of the study into the psychological contract has been concerned with the implications of the fulfilment or violation of such contracts. Most research found that the perceived fulfilment or violation of psychological contractual obligations substantially influences employee behaviours and attitudes such as organizational commitment ( Cuyper and De Witte, 2006; Flood et al., 2001; Lemire & Rouillard, 2005), job satisfaction (Cuyper and De Witte, 2006; Raja et al., 2004; Sutton & Griffin, 2003), citizenship behaviours (Othman et al., 2005), employee turnover (Flood et al., 2001; Sturges et al., 2005), perceived job security (Cuyper and De Witte, 2006; Kramer et al., 2005), motivation and performance (Lester et al., 2002). Because the violation of a psychological contract has more intense emotional response and implication than fulfilment, impact is likely to be greater. However, until now, the differential consequences of the violation or fulfilment of transactional comparative to relational components are uncertain (e.g. Coyle-Shapiro and Kessler, 2000; Raja, et al., 2004). The effects of psychological contract violation will strongly depend on the emotional response they cause to employees. Maintaining a strong psychological contract is important because it can lead to positive employee outcomes, whilst a violation of the contract leads to reduce trust and lower productivity, but also a significant reduction in organisational commitment, illustrated by higher levels of absenteeism and employee turnover. As a result of psychological contract violations there are higher levels of voice, exit, and neglect behaviours and lower levels of loyalty to the firm. In general, employees who survive in an organization following a layoff have been found to respond pessimistically to a reduction in force. Unfavourable reactions include concern, dejection, lower job satisfaction, lower organizational commitment, deterioration in morale, reduced productivity, higher resistance to change, absenteeism, higher voluntary resignations and lateness (Brockner, 1988; Davy, Kinicki, & Scheck, 1991).
2.3 Organisational Commitment: Important models of organisational commitment should be addressed, highlighting the four major dimensions of organisational commitment: performance, membership, goal, and change. It should be made clear why the performance and membership dimensions are being examined in light of the focus on job losses. The literature on these two dimensions should then be discussed. Again, propositions could be made to highlight what you think the impact of job losses would be on these two dimensions of organisational commitment.
RESEARCH MEHODOLOGY
Research Philosophy: Research can draw on a wide range of research philosophies, which underpin the research process. Rather than being some kind of abstract idea, the chosen research philosophy should explicitly guide the choice of research approach and design, the research methods that are selected, the way that the knowledge gathered is analysed, the nature of the knowledge claims that are made, and the value of the knowledge gathered through the research process. Broadly, research philosophies are discussed in terms of positivism and interpretivism. This research should draw on an interpretivist approach, which guides the choice of case study approach, the mixed methods strategy, use of qualitative and quantitative research methods, as well as the data analysis techniques that are adopted (see Lincoln and Guba, 1985; Thietart, 2001; Bryman, 2004).
Case Study Approach: The research will draw on a case study approach as a way of providing greater context for the research. Whilst this can be used as a methodological approach, guiding the entire research process, in this instance it should simply be used as a contextual tool (see Stake, 2003 for the reasons). There are three main approaches to the case study that can be adopted: intrinsic, instrumental and collective. The latter two aim to make generalisations from the findings, whilst the intrinsic case study approach is simply interested in the intricacies of the single case study organisation because this is of interest to the researcher. Whilst it may be possible to make generalisations from the findings, this is not the intention. The knowledge claims that are made based on the findings are therefore more modest (see Stake, 2003, 2006). The case study organisation should be any firm that has witnessed significant job losses as a result of the financial crisis, which could include firms within the financial and insurance industries, or those within the real estate or recruitment industries.
Research Strategy: A mixed methods approach should be adopted based on three stages: First, the need to understand the case study context. Second, the need to measure the impact of job losses on organisational commitment. Third, the need to assess the reliability of the findings.
Research Methods: Unstructured interviews should be used to understand more about the case study organisation, based around very broad themes, which include the background to the firm, its corporate and HR strategy, broader HRM issues, and the impact of the financial crisis on the firm, including job losses. A questionnaire should be used to examine the impact of job losses on the two dimensions of organisational commitment - performance and membership - drawing on existing, well-tested research instruments. Finally, semi-structured interviews should be conducted with a random sample of the individuals that completed the questionnaire in order to assess whether they feel the results reflect reality in the organisation (see Saunders et al., 2003; Bryman, 2004 for the background to these methods).
Data Analysis: The interview data should be recorded and transcribed so that it can be analysed using basic content analysis. The quantitative data collected from the questionnaire should be statistically analysed to look for relationships between job losses and the two dimensions of organisational commitment.
FINDINGS
The findings should be based around the case study. First, the case study organisation should be characterised. Second, the results from the statistical analysis should be presented and discussed, bearing in mind the comments made during the semi-structured interviews.
DISCUSSION/CONCLUSION
The discussion should be based around explaining why job losses have (or have not) impacted upon the two dimensions of organisational commitment. This should be explained in terms of the HRM strategy, policies and practices in the firm, but also the existing literature. Recommendations should be made for the management of the firm to help them alleviate potential problems associated with the job losses on levels of organisational commitment.
