Commitment, flexibility and the choice of employment contracts

Abstract

The study of the factors influencing a firm’s choice of employment contract occupies a critical role in the strategic human resource management literature. However, existing research does not adequately address an important question in an uncertain environment: Can a firm balance the apparently conflicting considerations of ‘commitment’ and ‘flexibility’, underlying employment contracts? By integrating research on transaction cost economics and the resource-based view, we propose that a firm may avoid the tradeoff between commitment and flexibility by differentiating between two types of human asset specificity: ‘firm specificity’ and ‘usage specificity’. The interplay between the two types of human asset specificity and their value-creation potential has fundamentally different implications for a firm’s choice of employment contract. By distinguishing between behavioral and competitive uncertainties, we propose that different types of uncertainties may influence levels of commitment and flexibility, and ultimately the choice of employment contract. Implications for research and practice are discussed.

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