The specificity of the employment relationship: exploring the micro-foundations of the firm

Abstract

We begin by examining the human traits that the leading mainstream economic theories of the firm consider relevant to understand the functioning of firms. We point out that the opportunism assumption (Williamson, 1975) differs from the “feelings of entitlement” assumption (Hart and Moore, 2008) which acknowledges both the negative and positive facets of moral behavior. Our thesis is that such divergence in the micro-foundations of the firm reflects the absence of an explicit and sound comprehension of why is the use of “human assets” more efficient in organizations than in markets. Such comprehension involves inquiring the specificity of the employment relationship, which we argue goes beyond authority/subordination to include a normative and relational dimension. The unique specificity of the employment relationship lies in the combination of i) some traits of human behavior with ii) the particular institutional setting in which work is performed and iii) the nature of work as a specific human activity. In any case, to soundly understand the employment relationship, one must go beyond the calculative abilities of homo economicus and endow him with moral abilities.