The New Deal at Work – Managing the Market Driven Workforce

Stewart Crowther (University of Teesside)

The Learning Organization

ISSN: 0969-6474

Article publication date: 1 May 2000



Crowther, S. (2000), "The New Deal at Work – Managing the Market Driven Workforce", The Learning Organization, Vol. 7 No. 2, pp. 112-115.



Emerald Group Publishing Limited

I approached the review of this text expecting another “how to” guide for managers, with the usual litany of management techniques; I was pleasantly surprised, therefore, to find a text that looks at some of the major issues of change in employment relationships, and how these effect the way managers should view their labour forces. Cappelli’s thesis can be easily summarized: the traditional relationships between employers and employees has gone, destroyed by the dominant logic of competitive end‐product markets, so that the internal labour markets of larger companies have lost their paternalism, resulting in employees losing their loyalty to the firm, and emphasising career, not the job, as their first commitment. As a result of managers bringing competitive market pressures inside the firm, job stability and its supportive relationships has been replaced by a constant re‐negotiation of employment terms, that negotiation being heavily influenced by the relative market strengths of the two parties. The dilemma for managers in this re‐structuring of employment relationships is that in times of tight labour markets, how are employees’ loyalty and commitment to the firm to be maintained?

The author structures his text to show how “traditional” employment relationships were created within larger organizations, as managers sought stability of employment for their core employees in order to retain the benefits of long‐term investment in training and development of individuals, while expecting them to reciprocate by showing loyalty and commitment to the firm. This mutually beneficial psychological contract helped insulate employees from the pressures of market forces within which the firm operated, ensuring that shareholders, not employees, took the risks of market pressures. These high‐trust relationships applied especially to managerial staff, and Cappelli gives some interesting information from the labour laws of the New Deal (1930s style) of exempt and non‐exempt employee categories, in terms of the protection such laws provided. Managers were exempt, as they were assumed to have a special relationship with the firm that did not require legal protection; it is, of course, exactly such employees who have borne the brunt of the recent de‐laying and redundancies that Cappelli describes in his excellent case studies.

The pressures to restructure employment relationships that Cappelli gives are familiar; globalisation and the competitive threats to established USA firms from Japanese inward investment, the impact of new information technology making many managerial functions redundant, the search for greater flexibility and reduction in staff costs, the increased power of shareholders seeking maximum returns. These, along with managerial techniques of benchmarking, core competencies and out‐sourcing, brought the market place into the firm’s labour market; no one is safe anymore.

So far, so convincing. Cappelli is less sure when he tries to quantify the extent of the changes he describes. He accepts that there is a debate around both the “width” and the “depth” of these changes in the USA. He accepts that for many sectors of employment, the “traditional” relationships never existed, especially for low skilled manual workers. As only a minority of workers are employed in the large firms that are the center of Cappelli’s focus, the extent of the changes are open to question. In terms of the penetration of changes within the internal labour markets of firms, there is similar caution; it is largely the managerial and administrative functions that have seen the impact of change, and these account for a minority (10 percent) of employees. The high visibility of these employees perhaps accounts for the degree of interest in their fate, rather than the generality of their experience.

Cappelli is back on firmer ground when he analyses the nature of issues that the restructuring creates for the management of people. By a series of examples, including Silicon Valley, he shows how the flexibility that firms seek in their employment relationships are dependent on changes in the nature of labour markets outside these firms; what he calls the external infrastructure that supports markets relationships within firms. Much of this infrastructure revolves around the ability of individuals to acquire and renew their skills and knowledge to make them employable. Whereas in the past, this was the responsibility of the firm, now this is thrust on the individual. As a result, claims Cappelli, individuals feel no moral commitment to the firms they work for, seeking only to enhance their CVs, and hence power in the labour market. For the managers, the resulting loss of control over training means that quality issues become a greater risk, with growing dependency on other institutions for creating a trained labour force.

How far can the re‐engineering and restructuring of employment relationships go? Cappelli gives examples of “virtual” firms, that create competitive advantage by minimizing overheads, but accepts that the reality for most firms is that externalizing its relationships with employees has limits. Indeed, that firms are now seeking to partially reverse the “arms length” relationships, by giving some degree of job security and long‐term development. The problem, claims Cappelli, is that competitive pressures will prevent this, even if senior managers seek it. In this market‐driven world, skills poaching is endemic, frustrating any firm’s ability to build long‐term relationships with their key staff. Cappelli shows how commitment is bought and retained, through remuneration packages, “golden handcuffs”, job design, informal agreements between competitors not to poach, legal restrictions on staff mobility, electronic record keeping to reduce the “information memory” loss when employees leave.

Finally, Cappelli discusses the social costs of the new employment relationships. He acknowledges that the benefits of the new arrangements are largely flowing to corporate profits and shareholder value, while the increased risks and costs of flexibility are thrust onto individuals and communities. The new divide within firms, he claims, is between senior executives and the rest; he does not explore the implications of this for future industrial relations. The author clearly suffers from a division of loyalty; he applauds the competitiveness that flexibility has achieved for USA firms, but questions “… whether, on balance, this change is a good thing” (p. 243). He reaches no conclusions, but raises the issues of “fairness” and equality, and how these can be reconciled with market‐driven employment relations; he is not optimistic.

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