Understanding psychological contract breach due to labour costs reduction: Contingent upon employee sex and managerial control

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Abstract

Integrating the perspectives of psychological contract and sex differences, this study examines how organizational decision to reduce labour costs influences employees’ perceived psychological contract breach and their commitment to their organizations. Using two experiments, we found three-way interaction effects among the decision to reduce labour costs, employee sex, and the managerial control over the decision. The decision of labour costs reduction leads to stronger feelings of psychological contract breach for females when the decision is in low than in high levels of managerial control, but the same decision leads to stronger psychological contract breach for males when the decision is in high than in low levels of managerial control. Furthermore, the indirect effect of labour costs reduction on employees’ organizational commitment through psychological contract breach is also contingent upon the interaction between employee sex and managerial control. Our findings expand the literature of psychological contract and shed light on timely practical issues of management's decisions regarding labour costs reduction.

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