Theories of Employment Relations in SMEs - Essay Example

THEORIES OF EMPLOYMENT RELATIONS IN SMEs By 14 January Theories of Employment Relations in SMEs Introduction Researchersand scholars in organisation studies often see small firms as the major sources of innovation and the drivers of the major economic change. SMEs are generally believed to be the greatest contributors to national and international economic growth and create an impression of being increasingly beneficial and attractive to potential employees, due to their flexibility, informality, and family-friendly environments, which are impossible in large organisations. These benefits, however, generate significant criticism: informality and flexibility in employment relations in SMEs are not without their problems. While some theorists position flexibility and informality as the positive factors of employee commitment and labour productivity, others consider flexibility and family-friendly environments responsible for lower job security, lower wages, lower quality of professional training, unsociable hours and even health risks. In the current state of literature, employment relations in SMEs are mainly underresearched and require developing a systemic framework, which will establish a single and universally accepted vision of how employers and employees cooperate and coordinate their efforts in small and medium enterprises. Theories of employment relations in SMEs: the impact of the NMW The development of employment relations theories with respect to SMEs usually goes along the three distinct lines: these are minimum wages and their impact on employment relations, flexibility and family environments, and the role of informality in relationships between employees and employers in small and medium organizations. In this context, the National Minimum Wage (NMW) is often the determining factor in the quality and stability of employment relations in SMEs. The theories of minimum wages and the role in employment relations in SMEs are both different and contradictory, but it is important to understand their role in the system of these relations in small and medium firms. To begin with, there is a persistent belief that the introduction of the National Minimum Wage has really important implication for small companies (Arrowsmith et al 2003), but whether these effects are beneficial or adverse is difficult to define. On the one hand, it is clear that the National Minimum Wage makes it possible for small and medium employers to promote fairness and equity in payments among the most low-paid workers. Given that SMEs constitute the larger portion of enterprises in the low-paid sector (Forth & O’Mahony 2003), the impact of the NMW on these sectors is difficult to underestimate. It is very probable that the NMW changes will provide employees with better pay increase opportunities, but are these changes as beneficial as someone may want to present it? Researchers agree that the need for small and medium employers to raise wages often contradicts to and even reinforces their desire to reduce their costs (Arrowsmith et al 2003; Bullock, Hughes & Wilkinson 2000; Heyes & Gray 2004). Moreover, the NMW is not the only criterion for determining the amounts and rates of pay in SMEs: more often than not, “conditions in the local labour market, employers’ perceptions of what constituted a ‘fair wage’, the nature of the work being performed and concerns relating to recruitment and retention […] exert an influence on pay decisions to varying extents” (Heyes & Gray 2004). While the proportion of small firms paying the minimum wage grows, they are bound to adopt new cost reduction strategies, which are either associated with lay offs or imply the need for employers to reduce work hours (Bullock, Hughes & Wilkinson 2000). This is what Arrowsmith et al (2003) call an orthodox approach to the institutional analysis of the minimum wage and its impact on employment relations in SMEs. There is still no agreement on whether the NMW influences the quality and effectiveness of training in firms: Bullock, Hughes and Wilkinson (2000) report the NMW to have visible training effects on only 10 percent of small firms; but Heyes and Gray (2003) assume that SMEs view training as a reasonable and effective response to the NMW, because training enhances the quality of labour force, leads to acquisition of new skills, and can readily compensate for the growing financial costs, which SMEs have to carry because of higher wages. The information about how the NMW impacts labour turnover is at least scarce, but Bullock, Hughes and Wilkinson (2000) suggest that the NMW has no effect on the rates of turnover in SMEs. The most interesting, however, is the idea proposed by Arrowsmith et al (2003) that the effects of the NMW on labour relations in SMEs are mediated by informality, which often prevails in SMEs. It appears that informality often becomes the distinguishing feature of relations between employees and employers in small and medium organisations, and it is more than important to see what role it plays in the overall quality of firms’ performance in the SME sector. Informality as the determining factor of employment relations in SMEs Informality is often regarded as the major contributing factor to the harmonious nature of employment relationships in SMEs – “small and beautiful” is the most frequent description of how employers and employees treat each other in small workplace environments (Ram & Edwards 2003; Towers 2004). According to Scase (2003), employment relations in SMEs are assumed to be non-problematic on the grounds that harmony in these relations prevails. However, the reality is quite different. On the one hand, theories of employment relations in SMEs recognise the probability of conflict. On the other hand, researchers grow more pessimistic about the impact, which informality may have on the quality of employer-employee relations in SMEs. As such, the exact role of informality in employment relations in SMEs is yet to be defined. The current state of research confirms that small business owners are more than reluctant and even oppressive toward the impact, which regulation may have on their performance: according to Marlow (2002), SMEs either refuse to adopt regulation practices or believe that they will be muted because of their position in the firm. However, like other aspects of employment relations, informality does have its own benefits and drawbacks. Informality in SMEs is often defined as the source of workforce happiness – it helps employees reasonably combine their family and workplace obligations and promotes reciprocity in relationships with employers (Harris & Foster 2007). Bearing in mind that informality is “a process of workforce engagement, collective and/ or individual, based mainly on unwritten customs and the tacit understandings that arise out of the interaction of the parties at work” (Ram et al 2001), it is natural that informality is associated with better responsiveness to employee needs, which may be problematic in larger enterprises. However, it is wrong to take informality as the source of the major performance value in SMEs. It often happens that informality is just a by-product of employers being unable or being unaware of how formal communication channels should work in their workplace environments. Researchers and scholars in organisation studies are becoming more concerned about the potentially negative impact which informality may have on the quality of employment relations in SMEs. Employers tend to treat informality as a convenient force of promoting employee compliance with the norms and standards of organisational performance in SMEs – because of the blurred hierarchy between the owner and the employee, those who are not willing to comply with shared values are thus considered to engage in disruptive behaviours, to challenge team ethos, and risk being excluded from the team (Marlow & Patton 2002). As a result, informality makes it difficult for employees to express opinions that go against the generally accepted standards of behaviour in each particular organisation. Also, informality in relations between employers and employees in SMEs has far-reaching implications for discipline, and informal communication networks often contradict to the vision of strict discipline in organisations (Marlow & Patton 2002). Sometimes, managers view formality as burdensome because small and medium enterprises require higher sensitivity to market changes and have to be speedier in their operational decisions; these needs go against the principles of formality and make it unacceptable and problematic (Towers 2004). Finally, there is a belief that informality is caused by employers having no specialist knowledge, which they could use to construct formal policies in the workplace (Marlow 2002). Although informality does not make relations between employees and employers in SMEs less dynamic, it does not erase the existing contradictions in employment relations and is not always responsible for the harmony in SMEs, which is more fantastic than real (Marlow, Patton & Ram 2004). This is a kind of a psychological contract, which employees in SMEs are believed to make with their employers and which also define their obligations and perceptions toward shared values and norms (Atkinson 2007). The current theories about informality in SMEs create an objective picture of informality as both beneficial and problematic; it is possible to assume that the problems of informality are the price, which employees and employers have to pay for the benefits, which informality offers. Despite the mostly contradictory opinions about informality, it is always linked to the necessary degree of flexibility in employment relations in SMEs, and the latter are also associated with the development and promotion of family-friendly environments in the workplace. Family-friendly environments and flexibility in SMEs In the study of employment relations in SMEs, flexibility is the subject of the major scholarly concern. Flexibility is a part of informal approaches to SMEs, but it is hardly a novel approach to employment relations. Rather, the current changes in flexibility “are, in fact, symptoms of capital restructuring where crises of accumulation necessitate a response premised on extracting greater value from labour” (Marlow 1997). As such, flexibility is the indispensable element of employment relations in present day SMEs. Dex and Scheibl (2002) show flexible working environments as a convenient means, which SMEs use to reconcile the pressures of family with business among employees. However, it is still unclear in what ways family-friendly workplace environments affect employees and employers. Flexibility and family-friendly policies are believed to promote employee commitment to the shared values in SMEs and result in increased employee loyalty (Dex 2004). Family-friendly flexible environments are assumed to be cost-effective and lead to improved performance (Dex & Smith 2002). Family business environments and flexibility shift the emphasis from traditionally patriarchal to the so-called parental models, which have profound impacts on both family and non-family employees and promote learning and better communication between employees and between them and employers (Dale, Shepherd & Woods 2007). As such, modern theories of employment relations in SMEs generally agree upon the beneficial effect of flexibility on employees. However, some theorists interpret such flexibility as arbitrary treatment among workers (Towers 2004). Such flexibility may lead to the development of conflict situations between employers and employees because it prevents employers and owners from communicating the emerging problems directly to employees (Towers 2004). As a result, the extent to which flexibility positively influences employment relations in SMEs heavily depends on how employers interpret, understand, and use this flexibility in their organisational environments. In light of the existing theoretical controversies, the impact of external factors like market pressures and consumer preferences on employment relations in SMEs requires further detailed analysis. Kinnie et al (1999) suggest that future research should concentrate on the impact, which supply chain relationships and the institutional environment are likely to produce on employment relations in SMEs. Although the theories of employment relations in SMEs are equally different and contradictory, they lay the foundation for the development of a single cohesive view of how employment relations work in small and medium enterprises, and what factors and elements are responsible for their quality and effectiveness. Conclusion The current state of research confirms that small business owners are more than reluctant and even oppressive toward the impact, which regulation may have on their performance: according to Marlow (2002), SMEs either refuse to adopt regulation practices or believe that they will be muted because of their position in the company. Notwithstanding that familiarity does not make relations between workers and employers in SMEs less dynamic, it does not erase the existing contradictions in employment relations and is not always responsible for the harmony in SMEs, which is more fantastic than real (Marlow, Patton & Ram 2004). In the study of employment relations in SMEs, flexibility is the subject of the major scholarly concern representing a part of informal approaches to SMEs, but it is hardly a novel approach to employment relations. Rather, the current changes in flexibility “are, in fact, symptoms of capital restructuring where crises of accumulation necessitate a response premised on extracting greater value from labour” (Marlow 1997). In the current system of organisation studies, small and medium enterprises are believed to be the major sources of innovation and the critical elements of economic growth. Unfortunately, the quality and effectiveness of employment relations in SMEs are still the topic of the hot scholarly debate. The discussion of employment relations in SMEs usually goes along the three distinct lines: the impact of the NMW, the role of informality, and the place of flexibility and family-friendly environments in SMEs. In its current state, the theories of employment relations in SMEs are both interesting and contradictory, but they lay the foundation for the development of a single systemic framework of how employees and employers coordinate their efforts in small and medium organisational environments. References Arrowsmith, J, Gilman, MW, Edwards, P & Ram, M 2003, ‘The impact of the National Minimum Wage in small firms’, British Journal of Industrial Relations, vol. 41, no. 3, pp. 435-456. Atkinson, C 2007, ‘Building high performance employment relationships in small firms’, Employee Relations, vol. 29, no. 5, pp. 506-519. 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