The employment relation as a social relation

This paper suggests how formal models of employment relations in economics might be enriched by paying greater attention to various themes emphasized in recent sociological and social psychological research. A review of the sociology of work highlights some areas where formal economic models of employment relations diverge from empirical reality. For instance, the emphasis on problems of “effort aversion” overlooks informal norms and social psychological forces that often motivate workers more powerfully than financial incentives do. In evaluating the efficiency of various forms of labor contracting, the economic literature has paid too little attention to such factors as workplace “atmosphere,” equity, and the “control costs” that workers associate with various systems of rewarding and monitoring labor, which play a major role in affecting how workers respond to a given employment system. Economic analyses of incentive systems have also often given short shrift to the impact of custom, political struggles within organizations, and constituencies external to organizations (including the state) in shaping employment regimes. The role of these sociological and social psychological forces in shaping employment systems is illustrated in the concluding section of the paper, which briefly compares selected aspects of employment systems in Japanese versus U.S. organizations. J. Japan. Int. Econ., December 1988, 2(4), pp. 492–525. Graduate School of Business, Stanford University, Stanford, CA 94305-5015.