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Changes in psychological contracts

during the global financial crisis: the
manager's perspective
a

Isabel Metz , Carol T. Kulik , Michelle Brown & Christina

Cregan

Melbourne Business School, University of Melbourne, Melbourne,

Australia
b

School of Management, University of South Australia, Adelaide,

Australia
c

Department of Management and Marketing, University of

Melbourne, Melbourne, Australia
Version of record first published: 29 Mar 2012.
To cite this article: Isabel Metz , Carol T. Kulik , Michelle Brown & Christina Cregan (2012):
Changes in psychological contracts during the global financial crisis: the manager's perspective, The
International Journal of Human Resource Management, 23:20, 4359-4379
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The International Journal of Human Resource Management,

Vol. 23, No. 20, November 2012, 43594379

Changes in psychological contracts during the global financial crisis:

the managers perspective
Isabel Metza*, Carol T. Kulikb, Michelle Brownc and Christina Creganc

Downloaded by [University of Leeds] at 10:49 30 January 2013

a
Melbourne Business School, University of Melbourne, Melbourne, Australia; bSchool of
Management, University of South Australia, Adelaide, Australia; cDepartment of Management and
Marketing, University of Melbourne, Melbourne, Australia

The employee organisation relationship is dynamic and arguably affected by

contextual factors, such as a change in the economic environment. This study uses data
collected from managers in Australia before and after the beginning of the global
financial crisis (GFC) to examine the changes in psychological contract (PC) terms
from the managers perspective. In particular, as industries can be affected differently
by economic crisis and gender discrimination can increase in tough economic
conditions, we examined if any changes in PC terms were contingent on industry and
employee gender. The studys results show that the terms of the employment
relationship deteriorated in Australia only for employees working in industries affected
by the GFC. Further, we found that some gender differences in the terms of the PC exist
independent of the state of the economy. In addition, a three-way interaction indicates
that managers working in industries not affected by the GFC are allocating a greater
proportion of their resources to their female employees than to their male employees.
Ongoing labour shortages and gender inequities in Australia might have prompted
managers in non-affected industries to use their relative resource-rich advantage to
positively influence the employee organisation relationship for female employees, a
traditionally disadvantaged group.
Keywords: employee organisation relationship; global financial crisis; managers
perspective; psychological contract

Introduction
Psychological contracts (PCs) encompass individual beliefs, shaped by the organization,
regarding terms of an exchange agreement between individuals and their organization
(Rousseau 1995, p. 9). Although the PC involves the employee and the employer, most
research to date has examined the PC from the employees perspective (e.g., Atkinson and
Cuthbert 2006; Chen and Chiu 2009) neglecting that of the employer. One of the
employers representatives is the immediate manager; s/he has a pivotal role in creating
the PCs of her/his subordinates (e.g., Rousseau and Greller 1994; Rousseau 1995; CoyleShapiro and Kessler 2000). In doing so, immediate managers influence the employee
organisation relationship.
The employee organisation relationship is dynamic and arguably affected by
contextual factors (e.g., Rousseau 1995; Shore, Tetrick, Taylor and Coyle-Shapiro 2004).
According to Shore et al. (2004), context is what surrounds and thus contains the terms and
conditions of the relationship, and it presents both constraints and opportunities (p. 325).
For example, contextual factors such as predicted and actual labour shortages have driven

*Corresponding author.Email: i.metz@mbs.edu

ISSN 0958-5192 print/ISSN 1466-4399 online
q 2012 Taylor & Francis
http://dx.doi.org/10.1080/09585192.2012.667432
http://www.tandfonline.com

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I. Metz et al.

organisations, and thus their immediate managers, to focus efforts on the quality of the
employee organisation relationship (Somaya and Williamson 2008). High quality
employee organisation relationships can lead to positive outcomes such as job
satisfaction, employee engagement and retention (Shore et al. 2004), which are payoffs
sought by organisations particularly in tight labour markets. In contrast, tough economic
environments might change managers perceptions of the importance of the employee
organisation relationship in favour of immediate economic concerns. Any changes that
downgrade existing terms of the work exchange relationship might lead to negative people
outcomes (Conway and Briner 2005) and, thus, weaken the organisations capability to
benefit from an economic recovery. As a result, it is important to know how a sudden
decline in economic conditions, such as that caused by the recent global financial crisis
(GFC), might influence immediate managers perceptions of the informal exchange
agreement between their employees and their organisations. Little empirical research has
been conducted to date on the role of context in changing PC content despite the
conceptualisation and importance of this relationship (Rousseau 1995; Shore et al. 2004).
In this study, we respond to calls to focus specifically on the role of context (e.g., Shore
et al. 2004).
The GFC is a good example of an economic environment change that would have
affected many businesses and, thus, potentially their management of employee
organisation relationships. The current study uses data collected in Australia before and
after the beginning of the GFC to examine changes in PCs from the managers perspective.
Further, we investigate whether changes in PCs affected some employees more than
others.
Theoretical framework
The influence of the economy on psychological contracts
History tells us that when faced with economic downturns many organisations adopt
strategies that sacrifice some, if not all, of their investments in employee organisation
relationships. An example of a drastic strategy to manage economic downturns is
downsizing or planned elimination of positions or jobs (Cascio 1993, p. 95). Downsizing
has negative financial and emotional effects on the employees that leave as well as on
those that stay (e.g., survivors syndrome, increased workload and reduced
organisational trust; Cascio 1993; Hopkins and Weathington 2006). Downsizing can
also be detrimental in the long-term because of the loss of organisation-specific knowledge
and talent, which the organisation needs to compete effectively during the upturn of the
economy (Mellahi and Wilkinson 2010).
It appears that organisations are using downsizing as a last resort cost reduction
strategy in response to the recent GFC (Zagelmeyer 2010; Roche, Teague, Coughlan and
Fahy 2011). Organisations might fear being unable to acquire talented human resources in
a subsequent economic upturn, because of the shrinking labour supply and demographic
shifts in Western economies. As a result, less drastic human resource management
strategies are being adopted to cope with the current economic crisis, such as the
temporary suspension of salary increases and training and development activities
(Zagelmeyer 2010). These changes in human resource management policies are likely to
lead to a different set of perceived organisational obligations to employees to those held
before the GFC (Briner 2010).
The responsibility to implement the organisations human resource management
policies falls on the organisations managers. Managers interpret policy and allocate

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resources to achieve organisational objectives (Perry and Kulik 2008). During an

economic downturn, managers might focus less on the quality of the exchange agreement
with their subordinates and more on immediate financial imperatives. Managers
understandings of their organisations obligations to employees are critical to the shortand long-term performance of their organisations, because managers are the most
important organisational representatives in the employment relationship (Rousseau 1995).
For example, if managers change some of the terms of the PC, and employees perceive
those changes to be unfair or unjust, the organisation might experience increased turnover
or decreased employee productivity (Turnley and Feldman 1998, 2000; Hopkins and
Weathington 2006). Hence, we focus on managers understandings of the PC terms before
and after the recent GFC. This focus encompasses the managers perceptions of what s/he
and the organisation are obliged to provide the employee, and what the employee is
obliged to provide the organisation in return.
The collapse of the Lehman Brothers bank in September 2008 marked the beginning of
the GFC (Garnaut 2009). The expected difficult economic environment and fewer than
usual job opportunities (as a result of expected freezes on new hiring or job losses; Lim,
Chua, Claus and Tsiaplias 2009) might have lowered managers understandings of their
organisations obligations towards their employees. Examples of lower organisational
obligations are reduced benefits or training opportunities. Further, reduced work
opportunities coupled with tough economic conditions for organisations might have
prompted managers to expect more from their employees after the last quarter of 2008
(herein referred to as post-GFC) than before (pre-GFC). Examples of higher expectations
from employees are longer work hours or more responsibilities for the same pay (Dvorak
and Thurm 2009; Zagelmeyer 2010; Roche et al. 2011).
Changes in pre- and post-GFC PCs are likely to vary across industries. On the basis of
past experience, we know that industries are differently affected by economic crisis. As a
result, employees in affected industries are more likely to experience the negative effects
of an economic crisis (e.g., loss of employment or reduction in work hours) than
employees in non-affected industries (Lim 2000). Consistent with past economic crises,
not all industries were similarly affected by the market crash of 2008 (Forster 2010; Roche
et al. 2011). Thus, we propose:
Hypothesis 1:

Any deterioration in PC terms will be more pronounced in affected

industries than in non-affected industries.

Further, in the light of persistent gender discrimination in the workplace worldwide

(Powell 2011), we expect that in tough economic conditions the employment terms applied
to female employees will deteriorate more than those pertaining to male employees. Gender
discrimination in employment is a global issue, despite anti-discrimination employment
legislation (e.g., Bennington and Wein 2000; Livanos, Yalkin and Nunez 2009; Powell
2011). Anti-discrimination legislation replaced overt forms of gender discrimination in the
workplace that could result in potential litigious actions (e.g., Federal Court of Australia
2002; U.S. Supreme Court 2007) with subtle and covert ones. Sexism is prejudice or
discrimination directed towards women (Ekehammar, Akrami and Araya 2000, p. 307).
The risk of replacing overt with subtle forms of discrimination is modern sexism
(Barreto and Ellemers 2005). Modern sexism is prevalent in organisations and it manifests
in much the same way as modern racism; that is, in more subtle and politically correct forms
of discriminatory behaviour than blatant sexism (Swim, Aikin, Hall and Hunter 1995).
Modern sexism can have negative consequences for women, such as higher anxiety
and social insecurity (Barreto and Ellemers 2005) and negative work outcomes

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I. Metz et al.

(e.g., Watkins et al. 2006). In contrast to blatant sexism, modern sexism is difficult to detect
and, thus, to challenge (Swim et al. 1995).
In addition, business justifications can unleash the subtle prejudices harboured by
modern sexists, leading to discriminatory employment behaviour. For example, modern
racism predicts discrimination when a legitimate authority figure provided a businessrelated justification for such discrimination (Brief, Dietz, Cohen, Pugh and Vaslow 2000,
p. 73). Similarly, unfavourable economic conditions may provide a business-related
justification for the manifestation of modern sexist beliefs, which in turn may lead to
gender discrimination in organisations. As the PC comprises individual beliefs regarding
employment obligations (Herriot, Manning and Kidd 1997), it is partly influenced by a
managers stereotypes and perceptions of male and female employees. Stereotypes and
perceptions can operate at an unconscious level, be impervious to change (Duehr and
Bono 2006), and lead to discriminatory decisions and behaviour (Eagly and Karau 2002)
that can go unnoticed (Powell 2011). The differential treatment of women in the workforce
can be more pronounced in bad than in good economic times (Livanos et al. 2009). Thus,
we propose:
Hypothesis 2:

Changes in the terms of the PC from pre- to post-GFC are likely to reflect
changes in the terms of the PC for female employees rather than changes
in the terms of the PC for male employees.

Using pre- and post-GFC data from managers working in Australian organisations, we
test the hypotheses that managers understandings of the PC terms would have deteriorated
after the beginning of the 2008 economic crisis, and that this deterioration is contingent on
industry and employee gender. As countries were differently affected by the GFC
(Garnaut 2009; Forster 2010; Roche et al. 2011), an outline of the Australian economy preand post-GFC is provided.
The Australian economic context from mid-2007 to end 2009
Up until the last quarter of 2008, the Australian economy was strong and growing (Lim
et al. 2009). For example, unemployment was low (approximately 3.3% in mid-2007;
Reserve Bank of Australia 2010), demand and prices for natural resources (e.g., coal and
iron ore) were increasing and consumer spending was relatively high (Garnaut 2009;
Crosby 2010). Despite Australia experiencing this unprecedented economic growth, the
2008 Australian Census of Women in leadership found that the proportion of women on
corporate boards and executive positions had declined since 2006, with women holding
only 8.3% of board directorships and comprising 7% of the executive management pool
(EOWA [Equal Opportunity for Women in the Workplace Agency] 2010).
With the collapse of the Lehman Brothers bank in September 2008, Australia began to
feel the effects of the GFC. Specifically, Australia experienced an economic downturn
from the last quarter of 2008 to approximately the middle of 2009, as reflected in the rise in
unemployment rates (Crosby 2010). Unemployment rose from approximately 4% in mid2008 to 5.8% in mid-2009 (Reserve Bank of Australia 2010). During this period, the
proportion of women on corporate boards and executive positions stabilised at a mere
8.4% of board directorships and 8% of executive managers (EOWA 2010).
We now know that Australias economic downturn was very mild compared to that
experienced by other developed countries in Europe and America (Garnaut 2009; Forster
2010; Roche et al. 2011). Nevertheless, media and scholarly commentaries in the last
quarter of 2008 indicate that the effect of the GFC on Australian businesses and consumer

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spending was expected to be as bad as in earlier recessions (e.g., Lim et al. 2009; Nichols
2009; Roche et al. 2011). Accordingly, businesses were expected to cut staff costs, giving
rise to job losses and unemployment (e.g., Lim et al. 2009). These expectations influenced
the Australian government to promptly intervene to stave off a recession (Garnaut 2009;
Lim et al. 2009; Forster 2010).
Contrary to expectations, businesses reduced or temporarily stopped hiring rather than
downsizing their workforces (Thomson 2009; ABS [Australian Bureau of Statistics]
2010b). An ongoing skills shortage in Australia (Australian Industry Group [AIG] 2008,
2010) motivated businesses to adopt strategies to lower labour costs while retaining human
capital, such as reducing work hours and wage growth, and requiring employees to use
accumulated leave (Thomson 2009; ABS 2010b). Some of these labour cost reduction
strategies can affect the terms of the PC (Conway and Briner 2005).
Method
Sample and procedure
Two samples of decision makers (managers, executives and CEOs) were obtained for this
study from data collected in 2007 (pre-GFC) and 2009 (post-GFC). Each data collection
used an independent mailing list purchased from Dun and Bradstreet (Australia; D&B).
The first mailing list was purchased in 2007 and the second one in 2009. In mid-2007,
survey packets were mailed to the 5128 contacts on the first D&B list. In each survey
packet was a cover letter inviting contacts to participate in the research and promising
them a report summarising the studys findings in exchange for their help. A reminder
letter followed 2 3 weeks later. A total of 749 responses were received, reflecting a 17.5%
response rate after adjusting for non-deliverable surveys. In mid-2009, we used a similar
data collection procedure. Survey packets were mailed to the 1801 contacts on the second
D&B list and 203 responses were received, reflecting a 12% response rate after adjusting
for non-deliverable surveys. These response rates are within the norm (standard deviation
around the average) observed by Baruch and Holtom (2008) for management research
surveying managers as organisational representatives.
Both in 2007 and 2009, managers at organisations representing all 17 of the Australian
Bureau of Statistics (ABS) standard industry classifications participated in our survey. The
combined 2007 and 2009 data comprised 952 responses. A total of 11 cases were deleted.
Eight cases were deleted because they answered fewer than 50% of the relevant questions.
All of the cases that were included in the final sample answered at least two-thirds of these
questions. Further, Mahalanobis distance was then calculated for each participant to
identify multivariate outliers. Three cases appreciably exceeded the criterion of chi-square
(19, 944) 43.82, p , 0.001, and were thus omitted. After deleting the 11 cases, there
were 941 responses for data analyses.
On the raw organisation size data, both groups (pre- and post-GFC) are skewed to the
left, indicating that the distribution of organisation size is not normal; in fact, both pre- and
post-GFC samples are populated by organisations with fewer than 200 staff. This
distribution reflects the predominance of small- and medium-size organisations in the
population of Australian organisations. The ABS reports that most (at least 71%)
organisations operating in Australia have fewer than 200 employees (ABS 2010c).
Similarly, 71% of the organisations in our combined 2007 and 2009 samples had fewer
than 200 employees.
The industries most frequently represented by the organisations in our combined
sample were manufacturing (17.4%), construction (10.7%), retail trade (8.3%) and

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agriculture, forestry and mining (7%). The ABS (2011) reports a similar distribution for
companies in the construction (9.4%) and retail trade (11.03%) industries. However, our
sample contained a larger proportion of manufacturing and agriculture, forestry and
mining organisations than reported in the ABS publications (9.3% and 3.3%,
respectively). In addition, comparisons with ABS data suggest that organisations in the
accommodation, cafes and restaurants (6.81%) and health and community services
(11.11%) industries were under-represented in our combined sample (organisations in
each of these industries constituted less than 4% of our sample).
Survey and measures
We asked the managers to take a moment before answering the survey to reflect on the
person they supervised with the shortest job tenure (i.e., the person s/he had hired most
recently). We wanted the respondents to focus on the most recently hired person for
several reasons. First, the employment terms associated with the most recent hire would be
the most salient and easiest for the participant to retrieve from his/her memory. Second,
the terms of the PC are most explicitly articulated at the beginning of an employment
relationship (Rousseau 1995; Lee, Liu, Rousseau, Hui and Chen 2011). Third, we were
interested in the standard PC. More recent recruits are more likely to demonstrate an
organisations standard terms, because PCs become more individuated and customised as
a result of in-the-job experiences (Conway and Briner 2005; Lee et al. 2011). Fourth, when
organisations need to cut costs, they are most likely to impose those changes on new hires
right at the start of the employment relationship (Cappelli and Sherer 1990; Greenhouse
2008). Therefore, the newest recruit provides the best opportunity to observe pre- and
post-GFC changes.
Dependent variables
Organisation PC. We asked managers to rate the extent to which they and their organisations
were obliged to provide six employment terms to the employee (see Appendix A). All
responses used a Likert scale ranging from 1 (strongly disagree) to 5 (strongly agree). This
list of six employment terms was based on the Organisation obligations to the employee
scale by Tekleab and Taylor (2003); we called these obligations the Organisation PC.
Employee PC. We asked managers to rate the extent to which their most recently hired
employee was obliged to engage in 10 activities to benefit the organisation (see Appendix A).
The first six obligations were drawn from Tekleab and Taylor (2003; e.g., Develop new skills
as needed). We then added four obligations from Dabos and Rousseau (2004) that seemed to
be particularly relevant to changing economic and labour market environments (e.g., Not
work elsewhere). All responses used a Likert scale ranging from 1 (strongly disagree) to 5
(strongly agree). We called this collection of 10 obligations the Employee PC.
Independent variables
Crisis timing. We created this variable to identify the 2007 and 2009 respondents. We
coded the 2007 and the 2009 groups as 0, Pre-GFC and 1, Post-GFC, respectively.
Employee gender. The gender of the employee was a dichotomous variable coded as 0,
Female and 1, Male.

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Industry. We asked the respondents to select, from a list of 17 industrial groups, the group
that best described their organisations activities. On the basis of the ABS (2010a) and
other economic data, we coded the industrial groups according to how affected they were
by the GFC: 0, Non-affected industries and 1, Affected industries. We called this
dichotomous variable Industry. In the Affected industries group we included those
industries most affected by the GFC as measured by their negative growth in gross
domestic product: Manufacturing, Accommodation and Food Services, Information
Media and Telecommunications, Finance and Insurance, Administration and Support
Services (ABS 2010a). Although Agriculture, Forestry and Fishing suffered a downturn
during the period of this study, economic commentators attribute the downturn in this
sector to the drought in Australia rather than to the GFC. As a result, we included
Agriculture, Forestry and Fishing in the group of industries not affected by the GFC.
Other industries in the Non-affected industries group were: Mining, Electricity, Gas
and Water Supply, Construction, Wholesale Trade, Retail Trade, Transport and
Storage, Property and Business Services, Education, Health and Community
Services and Personal and Other Services (ABS 2010a).
Other variables
To compare the pre- and post-GFC respondents and their most recent hires, we measured
another six personal and one organisational characteristics: manager gender (measured as
a dichotomous variable coded as 0, Female and 1, Male), manager age and employee age
(each measured as a continuous variable in years), manager and employee education
(ranging from 1, No higher school certificate to 7, Doctorate), employment status of the
employee (measured as a dichotomous variable coded as 0, Part-time and 1, Full-time) and
sector (measured as a dichotomous variable coded as 1, Public and 0, Private).
Control variables
On the basis of previous literature, we planned to control for three variables known to
affect the PC: employee tenure, manager gender and employee occupation (Conway and
Briner 2005; Atkinson and Cuthbert 2006). Employee tenure was measured as a
continuous variable in years. We also sought information on the employees occupation
and constructed a dichotomous employee occupation variable (1, Professional/Manager
and 0, Other). As will be seen in the correlations later, employee tenure and manager
gender were almost uncorrelated with most Organisational PC and Employee PC items
and, thus, were not controlled for (Becker 2005).
Description of the pre-GFC and post-GFC samples
Most of the managers in our two samples were male (70% in 2007 and 72.8% in 2009) and
held positions at the senior manager or executive level (89.1% in 2007 and 91.6% in
2009). Most respondents (82.1% in 2007 and 89.1% in 2009) indicated that they worked in
private sector organisations. Most of the recent hires worked full-time (90.1% in 2007 and
88.2% in 2009).
Independent samples t-tests were performed on the six personal and one organisational
characteristics to determine if the two samples differed. There were no differences
between the pre- and post-GFC respondents and their most recent hires, except that the
2009 managers were more likely to be older and work in the private sector than their 2007
counterparts.

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In addition, the distributions of respondents in our 2007 and 2009 samples across large
and small and medium size organisations, private and public sector, and Affected and
Non-affected industries were similar to the distributions of the population of employees
(see Appendix B). Only for 2009 did our sample comprise a greater proportion of
respondents working for small- and medium-size organisations than the population.
Results
Tables 1 and 2 present the means, standard deviations and correlations of the variables
used in this study; Table 1 includes the Organisation PC terms and Table 2 the Employee
PC terms.
The hypothesised relationships were tested using multivariate analyses of covariance
(MANCOVAs) to assess the contributions of crisis timing, employee gender and industry
to the two sets of dependent variables (namely, the set of Organisation PC items and that of
Employee PC items), after controlling for one covariate (employee occupation). As many
of the PC items were negatively skewed and homogeneity of covariance was violated
(as indicated by elevated levels of Boxs M) a conservative alpha of 0.025 together with
Pillais Trace were used to interpret the results (Haase and Ellis 1987).
A MANCOVA was chosen over alternative analytical methods, such as Ordinary Least
Squares (OLS), for two reasons. First, a MANCOVA allows for the identification of
obligation-specific changes and, thus, provides a more nuanced understanding of the GFC
effects than OLS using composite PC scales. Second, as we needed to examine the
simultaneous impact of our predictor variables on 16 outcome variables, we would have to test
16 separate regression equations (one for each organisation and employee obligation
contained in the PCs) with OLS. A large number of univariate regression analyses would
dramatically escalate our Type 1 error rate. In addition, univariate OLS tests ignore important
information; namely, the correlations among the obligations (Weinfurt 1995; Stevens 1996).
Organisation PC changes
We conducted an initial 2 2 2 MANCOVA to assess whether crisis timing, employee
gender and industry affected managers expectations of what they and their organisations
were obliged to provide their employees. As can be seen from Table 3, a three-way interaction
between crisis timing, employee gender, and industry emerged (Pillais 0.017,
F(6, 918) 2.601, p , 0.025). Hence, two additional MANCOVAs were conducted to
examine the effect of crisis timing and employee gender on the Organisation PC items for nonaffected and affected industries separately. Table 4 reports the results of these MANCOVAs,
and Table 5 reports the means and standard deviations associated with the significant effects.
Non-affected industries
Table 4 shows a main effect for the covariate (employee occupation) (Pillais 0.067,
F(6, 599) 7.18, p , 0.001). As can be seen from Table 5, the obligation to provide an
attractive benefits package and leadership was higher for employees in Professional/
Manager occupations (mean [Benefits] 4.22 and mean [Leadership] 4.49) than
for employees in lower level occupations (mean [Benefits] 3.84 and mean
[Leadership] 4.28). Further, Table 4 shows a main effect for employee gender
(Pillais 0.025, F(6, 599) 2.52, p , 0.025), such that the obligation to provide an
attractive benefits package was lower for women (mean 3.88) than for men (mean 4.12;
see the means in Table 5). A marginal effect was also observed in that employee gender

1.19
0.43
0.71
0.21
4.00
4.30
4.39
4.08
4.58
4.27

2.00
0.49
0.46
0.41
0.77
0.69
0.67
0.71
0.53
0.67

SD

Note: *p , 0.05, **p , 0.01, ***p , 0.001.

1. Tenure
2. Occupation
3. Manager gender
4. Timing
5. Benefits
6. Training
7. Leadership
8. Employees interests
9. Resources
10. Opportunities

Mean

0.02
0.06
0.07*
0.07*
20.03
0.04
0.06
0.01
0.00

0.18***
20.03
0.23***
0.02
0.14***
0.03
20.04
0.04

0.03
0.11**
20.06
20.03
20.05
20.02
20.09**

Table 1. Descriptive statistics and correlations (N 941) for Organisation PC terms.

20.05
20.07*
0.05
20.01
20.03
20.01

0.21***
0.31***
0.27***
0.22***
0.31***

0.39***
0.25***
0.33***
0.43***

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0.37***
0.39***
0.34***

0.40***
0.37***

0.42***

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4367

1.19
0.43
0.71
0.21
3.59
4.25
4.72
4.86
4.18
4.71
2.79
4.02
3.79
4.06

2.00

0.49
0.02

0.46
0.06
0.18***
0.41
0.07* 2 0.03
0.93
0.06
0.07*
0.63 20.01
0.08*
0.52 20.02
0.07*
0.41
0.01
0.04
0.76 20.02
0.16***
0.50
0.03 2 0.02
1.10
0.07 2 0.05
0.69
0.04
0.17***
0.83
0.01
0.20***
0.74
0.05
0.17***

SD

Note: *p , 0.05, **p , 0.01, ***p , 0.001.

1. Tenure
2. Occupation
3. Manager gender
4. Timing
5. Volunteer
6. New skills
7. Reliable
8. Honest
9. Extra hours
10. Comply
11. No plans
12. Seek T&D
13. Contacts
14. Challenge

Mean

0.02
0.01
2 0.04
0.01
2 0.04
0.10**
2 0.09**
0.09**
2 0.04
2 0.01
0.00

0.01
20.02
20.03
20.01
0.00
0.00
0.07*
20.03
20.03
0.02

0.18***
0.10**
0.11**
0.27***
0.11**
0.09**
0.09**
0.09**
0.23***

0.29***

0.25***
0.47***
0.21***
0.24***
0.26***
0.32***
0.01
2 0.01
0.39***
0.16***
0.26***
0.15***
0.37***
0.18***

Table 2. Descriptive statistics and correlations (N 941) for Employee PC terms.

0.16***
0.39***
0.08*
0.11**
0.10**
0.16***

0.19***
0.16***
0.19***
0.20***
0.34***

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11

12

13

0.04

0.14*** 0.02

0.08*
0.06
0.54***

0.14*** 0.11*** 0.45*** 0.47***

10

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Table 3. Multivariate tests for Organisation PC items.

Pillais value

Sig

0.062
0.018
0.016
0.015
0.002
0.016
0.014
0.017

10.06
2.76
2.42
2.26
0.334
2.48
2.23
2.60

0.000
0.012
0.025
0.036
0.919
0.022
0.038
0.017

Occupation
Crisis timing (CT)
Employee gender (gender)
Industry
CT Gender
CT Industry
Gender Industry
CT Gender Industry

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Note: Hypothesis degrees of freedom and error degrees of freedom were (6, 918).

Table 4. Multivariate tests for Organisation PC items for affected and non-affected industries.
Non-affected industries (6, 599)a

Occupation
Crisis timing (CT)
Employee gender (Gender)
CT Gender
a

Affected industries (6, 599)a

Pillais value

Sig

Pillais value

Sig

0.067
0.015
0.025
0.023

7.18
1.49
2.52
2.34

0.000
0.180
0.020
0.031

0.054
0.054
0.038
0.018

2.98
2.97
2.08
0.98

0.008
0.008
0.055
0.439

Note: Hypothesis df, Error df.

influenced the effect of crisis timing (Pillais 0.023, F(6, 599) 2.34, p 0.031; see
Table 4) for the reported organisational obligation to give resources (Provide resources that
enable this employee to do his or her work). Post-GFC, managers report a higher obligation to
give resources to female (mean 4.72) than to male (mean 4.47) employees; no such
gender difference was evident for pre-GFC samples (see Table 5).
Affected industries
Table 4 shows a main effect for the covariate (employee occupation) (Pillais 0.057,
F(6, 313) 2.98, p , 0.01), such that the obligation to provide an attractive benefits
package was higher for employees in Professional/Manager occupations (mean 4.17)
than for employees in lower level occupations (mean 3.82; see means in Table 5). Table 4
also shows a main effect of crisis timing (Pillais 0.054, F(6, 313) 2.97, p , 0.01).
Managers in affected industries reported lower organisational obligations to their employees
for all six items post-GFC (regardless of gender). In particular, training, employee interests
and development opportunities were significantly higher for pre-GFC than post-GFC
samples (see Table 5 for the pre-GFC and post-GFC means of these three obligations).
In summary, changes in Organisation PC terms support Hypothesis 1 but not
Hypothesis 2. Hypothesis 1 proposed that the deterioration in PC terms would be more
pronounced in affected industries than in non-affected industries. Our results show that
pre- and post-GFC differences in the Organisation PC terms varied by industry.
Specifically, the lowering of Organisation PC obligations towards employees post-GFC
occurred in organisations operating in industries affected by the GFC. In contrast, for
organisations operating in non-affected industries, there was a trend post-GFC towards
increasing (rather than decreasing) one obligation: to provide resources that enabled
employees to do their work. Therefore, Hypothesis 1 was supported for the set of

Affected industries
Occupation
Benefits package
Crisis timing
Training
Employee interests
Development opps

Non-affected industries
Occupation
Benefits package
Leadership
Employee gender
Benefits package
Crisis timing Gender
Give resources (Pre)
Give resources (Post)

4.08(post)
3.87(post)
4.08(post)

4.37(pre)
4.10(pre)
4.33(pre)

4.58(M)
4.47(M)

4.52(F)
4.72(F)

4.17(Manager)

4.12(M)

3.88(F)

3.82(Other)

4.22(Manager)
4.49(Manager)

Mean 2

3.84(Other)
4.28(Other)

Mean 1

0.701(pre)
0.729(pre)
0.619(pre)

0.828(Other)

0.548(F)
0.454(F)

0.789(F)

0.824(Other)
0.711(Other)

SD 1

Table 5. Differences in means and standard deviations, and tests of between subject effects.

0.726(post)
0.640(post)
0.762(post)

0.621(Manager)

0.560(M)
0.537(M)

0.743(M)

0.630(Manager)
0.574(Manager)

SD 2

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0.280
0.008

21.081
22.71

3.036
2.491
2.950

0.003
0.013
0.003

0.000

0.000

23.702

24.308

0.000
0.000

Sig.

25.998
23.646

t-tests for equality of

means

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Table 6. Multivariate tests for Employee PC items.

Occupation
Crisis timing (CT)
Employee gender (Gender)
Industry
CT Gender
CT Industry
Gender Industry
CT Gender Industry

Pillais value

Sig

0.062
0.009
0.042
0.018
0.004
0.032
0.015
0.014

5.96
0.82
3.96
1.64
0.396
2.97
1.38
1.25

0.000
0.610
0.000
0.090
0.949
0.001
0.183
0.253

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Note: Hypothesis degrees of freedom and error degrees of freedom were (10, 898).

Organisation PC terms, because a deterioration in PC terms occurred in affected industries

but not in non-affected industries.
Hypothesis 2 then proposed that changes in the terms of the PC from pre- to post-GFC
would likely reflect changes in the terms of the PC for female employees rather than for male
employees. We found one three-way interaction showing that managers in non-affected
industries reported an increasing obligation post-GFC to provide resources to women that
enabled them to do their work. Thus, our three-way interaction did not support Hypothesis 2,
because the one Organisation PC term that changed post-GFC for women (and not for men)
reflected an improvement rather than a deterioration of the PC for women.
Employee PC changes
Another initial 2 2 2 MANCOVA was conducted to assess whether crisis timing,
employee gender and industry affected managers expectations of what the employees were
obliged to provide their organisations. As can be seen from Table 6, there was no three-way
interaction between crisis timing, employee gender, and industry. There was, however, a
main effect for employee occupation (Pillais 0.062, F(10, 898) 5.96, p , 0.001). As
can be seen in Table 7, respondents were more likely to expect employees in Professional/
Manager occupations than employees in lower level occupations to develop new skills,
seek training and development, build contacts (inside and outside the organisation to
enhance career potential) and accept high standards (i.e., accept increasingly challenging
performance standards).
Table 6 also shows a main effect of employee gender (Pillais 0.042, F(10,
898) 3.96, p , 0.001), such that managers reported higher expectations of men than of
women in terms of work extra hours, not work elsewhere and accept high standards
(see means in Table 7).
Further, Table 6 shows that a two-way interaction between crisis timing and industry
emerged (Pillais 0.032, F(10, 898) 2.97, p 0.001). Hence, two univariate
ANOVAs were conducted to examine the effect of crisis timing on Employee PC items
for affected and non-affected industries separately. Table 7 presents the significantly
different means in employee obligations for each industry before and after the GFC.
Non-affected industries
For the non-affected industries, managers were more likely to expect post-GFC (mean
3.13) than pre-GFC (mean 2.74) that employees would make no plans to work elsewhere.

4.38(M)
2.92(M)
4.16(M)

4.10(F)
2.54(F)
3.93(F)

2.75 (Pre)

4.11 (Pre)
3.93 (Pre)

Non-affected industries
Crisis timing
Not work elsewhere

Affected industries
Crisis timing
Seek T&D
Build contacts
3.79(Post)
3.51(Post)

3.14(Post)

4.32(Manager)
4.17(Manager)
4.01(Manager)
4.20(Manager)

4.13(Other)
3.89(Other)
3.64(Other)
3.86(Other)

Mean 2

Occupation
New skills
Seek T&D
Build contacts
High standards
Employee gender
Work extra hours
Not work elsewhere
High standards

Mean 1

0.644 (Pre)
0.776 (Pre)

1.071 (Pre)

0.747(F)
1.039(F)
0.920(F)

0.684(Other)
0.712(Other)
0.880(Other)
0.898(Other)

SD 1

Table 7. Differences in means and standard deviations, and tests of between subject effects.

0.736 (Post)
0.841 (Post)

1.073(Post)

0.662(M)
1.118(M)
0.708(M)

0.614(Manager)
0.618(Manager)
0.699(Manager)
0.738(Manager)

SD 2

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3.698
3.992

0.000
0.000

0.000

0.001
0.002
0.013

23.475
23.200
22.485

23.596

0.007
0.000
0.000
0.000

Sig.
22.732
23.732
24.143
23.713

t-tests for equality of

means

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Affected industries
Managers in affected industries had a lower expectation post-GFC that employees would
actively seek opportunities for training and development (Seek T&D; mean [pre] 4.11;
mean [post] 3.79), and build contacts to enhance career potential (Build contacts; mean
[pre] 3.93; mean [post] 3.51).
In summary, pre- and post-GFC differences in some of the Employee PC terms varied
by industry, but not by employee gender. Specifically, the expectations of respondents in
non-affected industries changed in one instance: respondents were more likely post-GFC
than pre-GFC to expect their employees not to make plans to work elsewhere. In
comparison, respondents in affected industries reported that their employees were less
obliged post-GFC to actively seek opportunities for training and development, and to build
contacts inside and outside the organisation to enhance career potential. The lowering of
these two employee PC terms is likely to reduce the employees self and career
development, which might be detrimental to the employee and to the employer during an
economic upturn. Therefore, Hypothesis 1 was partly supported, because deterioration in
Employee PC terms was more pronounced in affected than in non-affected industries.
However, Hypothesis 2 was not supported (for Employee PC terms), because there were
no gender differences in PC changes from pre- to post-GFC.
Discussion
The literatures on PCs, gender discrimination and the impact of economic crisis on
industries indicate that organisations (through their managers) might have reduced the
focus on the employee organisation relationship to manage the GFC of 2008. Such
refocus would have resulted in the deterioration of at least some of the PC terms. Any
deterioration, however, is expected to be more pronounced in industries affected by the
recent GFC than in those not affected by it. In addition, any deterioration of PC terms is
expected to be more pronounced for female than male employees, because pressing
economic concerns would have provided sufficient business-related justifications for
some managers to subtly discriminate against women. Thus, this study examines if any
changes in PC terms after the start of the GFC are contingent on industry and employee
gender.
After controlling for employee occupation, we found that men are more likely to get
attractive benefits than women regardless of the state of the global economy. This finding
aligns with evidence of a persistent gender pay gap in Australia (Goldman Sachs JBWere
2009) as elsewhere (OECD [Organisation for Economic Co-Operation and Development]
2006). In return for providing more attractive benefits packages to men, immediate
managers perceive male employees to be more obliged than female employees to work
extra hours if needed to get the job done, make no plans to work anywhere else and accept
increasingly challenging performance standards. On the basis of social role theory, men
are the primary income earners and women the primary care givers (Eagly 1987). Thus,
decision makers might rationalise that men have higher financial needs and can give more
time to work than women (Pfeffer and Ross 1982). Nevertheless, these gender differences
in immediate managers understandings of the PC terms might constitute subtle forms of
discrimination that can have negative consequences for women (Ekehammar et al. 2000).
For example, by perceiving female employees as less obliged than their male counterparts
to accept increasingly challenging performance standards, immediate managers might
provide fewer or less challenging work opportunities to women than to men. Yet,
challenging developmental experiences facilitate womens career advancement (Metz and

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I. Metz et al.

Tharenou 2001). In summary, the reported differences in managers understandings of the

PC terms can lead to behaviour that advantages men and disadvantages women.
Some of the terms of the PC deteriorated after the start of the GFC, but primarily for
employees working in affected industries. Managers working in affected industries
perceive lower obligations to provide employees training and development opportunities,
and make decisions with the employees interests in mind. Further, immediate managers in
affected industries perceive that employees are less obliged than before to actively seek
opportunities for training and development, and to build contacts inside and outside the
organisation to enhance career potential. We conclude that managers in organisations
affected by an economic downturn are likely to change aspects of the employee
organisation relationship that can hinder the employees professional development in the
short- and medium-term. This change in PC terms reflects an approach to the management
of the employee organisation relationship that is contingent on economic conditions. This
contingent approach can have the unintended effect of slowing an organisations financial
recovery during a subsequent economic upturn. For example, employees dissatisfied with
deteriorating training and professional development opportunities in their current
organisations might seek better opportunities elsewhere, as soon as the economy and the
labour market improve. Unfortunately for current employers, that might be precisely when
they need their employees loyalty most.
In contrast, managers in non-affected industries simply have a higher expectation postGFC that their employees will make no plans to work anywhere else. It is possible that
immediate managers in non-affected industries expect higher loyalty from their employees
in return for maintaining other PC terms during tough economic times.
Only one PC term improved for women post-GFC: the reported (organisation)
obligation to provide resources that enable the employee to do his/her work. This gender
difference (in favour of women) occurs only in industries not affected by the GFC. This
result is surprising because, instead of reflecting sexism, it appears to reflect favouritism.
In line with the rationale that the employee organisation relationship is dynamic and
affected by contextual factors (e.g., Rousseau 1995; Shore et al. 2004), in this instance the
context presented an opportunity for organisations operating in non-affected industries to
positively influence the employee organisation relationship for female employees. Media
coverage in 2008 2009 on persistent gender inequities in Australia may have prompted
decision-makers in non-affected industries to take corrective action in the form of
providing resources to women to do their jobs. Examples of media topics in the months
leading up to the second data collection were the persistent under-representation of women
in leadership (e.g., Fox 2008) and the enduring gender pay gap (e.g., Healy 2008). Gender
inequities in the workplace are unlikely to be addressed by merely providing more
resources to women. Future research is needed to determine if this finding reflects genuine
efforts to reduce gender inequities or simply the generous mood of comparatively
resource-rich organisations.
In conclusion, the GFC changed managers understandings of the terms of the
employment relationship only in particular instances. This selective influence might be
partly explained by the mild impact of the GFC on Australian businesses relative to
businesses in some other developed countries (e.g., Ireland; Roche et al. 2011), the fact
that any impact was further attenuated by government interventions to stimulate the
Australian economy (Garnaut 2009; Forster 2010), the fierce competition for talent (AIG
2010), and a renewed interest in gender inequity issues in Australia (e.g., Goldman Sachs
JBWere 2009). In particular, the three-way interaction found in this study indicates that the
last contextual factor (renewed interest in gender inequity issues) can trump economic

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conditions for non-affected industries. Organisations that are comparatively resource-rich

during an economic downturn might want (or want to be seen) to redress gender inequities
by providing a greater proportion of their resources to their female employees
(a traditionally disadvantaged group) than to their male employees.

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Practical implications
Economic downturns can place a strain on the employee organisation relationship,
particularly for affected organisations. However, such strain can be managed. Lessons
from countries severely affected by the GFC (e.g., Ireland) suggest that the most important
human resource management practice in a recession is open, honest and intensive
communication (from the organisation to employees) to manage expectations effectively
(Roche et al. 2011). Managers are key in the communication of economic pressures to
employees (Roche et al. 2011) and, if necessary, in re-negotiating the terms of the PC
(Conway and Briner 2005).
Further, gender diversity in organisations in general (Herring 2009), and in leadership
in particular (Werner, Devillard and Sancier-Sultan 2010), has been associated with
improved financial performance. Therefore, organisations will benefit from providing
female employees with equally generous employment terms and conditions as their male
colleagues to avoid loss of female talent. Differential treatment on the basis of gender has
led female employees to take legal action against their employers (e.g., Federal Court of
Australia 2002). Organisations can avoid legal proceedings, attract and retain female
talent and improve financial performance by raising awareness of subtle and covert forms
of discrimination, such as differential perceptions of the employment exchange
relationship for male and female employees.
Studys contributions and limitations
This study makes a number of contributions. First, as we collected data on the PC before
and after the start of the recent GFC, this study provides a unique contribution to our
understanding of the dynamic nature of the PC without having to rely on informants posthoc evaluations of how employment relationships were affected by economic conditions.
Second, this study contributes to our understanding of the dynamic nature of the PC from
the employers perspective, an under-studied viewpoint. Specifically, this study sheds
light on how managers in affected and in non-affected industries differentially manage the
employee organisation relationship in an economic downturn. Third, this study informs
how employee gender can influence the managers perception of that relationship. Thus,
this study starts to fill a gap in our current understanding of how the managers perspective
of PCs might be influenced by contextual factors, such as the health of the economy, and
by personal factors, such as the employees gender.
Despite its contributions, this study has two main limitations. First, as the study was
conducted in Australia (a country that so far has been relatively unaffected by the GFC), its
findings are likely to underestimate the potential impact of economic downturns on the PC.
The upside, however, is that its findings can be generalized to countries similarly, or more,
affected by the GFC. Second, this study focused on understanding the influence of
changing economic conditions on the PC, but only from an employers perspective. We
acknowledge that the employees perspective is also needed to fully understand the impact
of context and employee gender on the PC. Nevertheless, under tough economic
conditions and a general reduction in suitable job vacancies, we would expect immediate
managers to take the lead in PC changes.

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I. Metz et al.

Conclusion
Overall, the results of this study show that the terms of the employment relationship
deteriorated in Australia only for those employees working in industries affected by the
GFC. Further, this deterioration applied to only half of the perceived organisation
obligations to the employee, and to one-fifth of the perceived employee obligations to the
organisation measured in this study. The relative stability of the PC terms in Australia preand post-GFC is likely to be the result of two important contextual factors: the ongoing
shortage of skilled labour in Australia and the mild impact of the GFC on Australian
businesses compared to elsewhere.
Despite the ongoing shortage of skilled labour in Australia, however, some gender
differences in the terms of the PC exist independent of the economy. This finding suggests
that, in Australia, immediate managers engage in subtle forms of gender discrimination.
Considering that the labour shortage in Australia is reportedly the highest business priority
for CEOs (e.g., AIG 2010) and the continued trend in the increase in womens
participation in the labour force (ABS 2009), managers should redress the gender
inequalities in the PC to fully utilise Australias hidden resource: female talent
(Goldman Sachs JBWere 2009). Managers in industries not affected by the recent GFC
appear to be using their relative resource-rich advantage to lead this redress.

Acknowledgement
This research was supported by a grant from the Australian Research Council (Discovery Project
0664752). We are grateful for assistance provided by Mark Crosby and Simon Moss.

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Appendix A: Organisation PC and Employee PC obligations

Organisation psychological contract obligations
To what extent are you and your organisation obliged to provide each of the following to this
employee? (Bolded words were used in Table 1)
An attractive benefits package
Training
Leadership
Make decisions with this employees interests in mind
Provide resources that enable this employee to do his or her work
Provide developmental opportunities within the organisation

Employee psychological contract obligations

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To what extent do you feel that this employee is obliged to provide each of the following to you and
your organisation? (Bolded words were used in Table 2)
Volunteer to do tasks that fall outside his/her job description
Develop new skills as needed
Perform his/her jobs in a reliable manner
Deal honestly with the organisation
Work extra hours if needed to get the job done
Follow company policies and procedures (comply)
Make no plans to work anywhere else
Actively seek opportunities for training and development (Seek T&D)
Build contacts inside and outside the organisation to enhance career potential
Accept increasingly challenging performance standards (Challenge)

All responses were given on a scale ranging from 1, strongly disagree, to 5, strongly agree.

Appendix B. Comparison of sample and population distributions in 2007 and 2009, by

organisation size, sector and industry group.
% Employed

2007 Population
(%)

2007 Sample
(%)

2009 Population
(%)

2009 Sample
(%)

73

75

71

86

27
19
81
68
32

25
17
83
66
34

29
16
84
69
31

14
11
89
63
37

Small to medium
organisations
Large organisations
Public sector
Private sector
Unaffected industries
Affected industries
Sources: ABS (2008a,b, 2010d,e)