Labor demand by an employer usually varies through time. Ideally, the employer will want to retain some flexibility in the amount of labor that is purchased. There are many techniques for retaining some flexibility while offering long-term employment to (at least) a core of employees but even given these techniques, long-term employment relationships can reduce the ability of the employer to match levels of employment with demand.
1. The Dark Side of Loyalty
Loyalty can be beneficial, but it can have deleterious effects as well. To provide appropriate incentives to employees, employers must sometimes take actions that hurt employees. And employee loyalty to co-workers can be detrimental to the employer, if employees protect each other or, especially when comparative evaluation systems are used, adopt a group norm against providing consummate effort.
2. Dysfunctional Behavior
Long job tenures by employees may give them greater opportunities for harming the employee, intentionally or otherwise. For example, subordinates in a long-term employment situation may try to influence or lobby superiors; such so-called influence activities can have substantial adverse consequences for promotion systems, monitoring, and job design.
3. Familiarity (Sometimes) Breeds Contempt
Long-term employment facilitates cooperation among employees. This benefit is not automatic, however. It takes careful management to be realized. For example, long-term employment relationships can intensify fractious personal relationships among competitors for the same job, or between younger workers and more senior employees who view the neophytes as potential rivals.
4. Strengthening the Employer's (and Employee's) Bargaining Position
If the employer can increase her hold on the employee, by increasing the desirability of the job she offers relative to the employee's outside opportunities, then she strengnts her bargaining leverage. Thus, employers-both to pursue the direct benefits of long-term employment previously previously and to increase their bargaining leakage-will take steps to tie the employee to the current job. Of course, to the extent that such steps are effective, they result in longer-term employment.
And, on the other side, the employee will take steps to increase his relative desirability as an employee to his employer, both to realize the direct benefits listed earlier and to strengthen his bargaining position. This also promotes longer-term employment.
5. Actions that Lengthen Employment Duration
Although long-term employment has both advantages and disadvantages, the advantages tend to prevail; both sides tend to benefit from long-term employment. But this general tendency does not mean that the desires of employee and employer will coincide in each and every case. Employees will sometimes leave a job of their own volition. They may find a better job. They may be impelled to quit for personal reasons. They may simply lose interest in the current job. Employers, to realize the benefits of long-term employment and to improve their bargaining position, will want to discourage voluntary turnover among employees.
– Employers can also promote a strong and distinct culture; workers who self-select into this organization because of the culture or who are socialized into it will be less likely to leave for another firm.
– Employers may operate an internal labor market: New employees of the firm enter from the outside into a few, generally low-level, port-of entry jobs and then rise through the firm; promotions are internal, and competition for a plum job is restricted to those already employed by the firm. Put baldly, the firm offers not jobs but careers. internal labor market decrease voluntary turnover by giving employee workers promotion prospects, by building worker loyalty to and identification with the organization, and by increasing social connections among workers.