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Can agency theory disclose organizational commitment?Exploring employees and agency workers

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Can agency theory disclose organizational commitment?

Exploring employees and agency workers

Pei-Chen Chen1 and Shih-Chieh Fang2

Department of Business Administration, National Cheng Kung University No.1, Daxue Rd., East Dist., Tainan City 70101, Taiwan (R.O.C.)

1E-mail: r4896115@mail.ncku.edu.tw 2E-mail: fangsc@mail.ncku.edu.tw

Abstract

In the 21st century, dispatching human resources is an important means by which an enterprise is able to maintain a flexible workforce and reduce cost. By taking advantage of human resources dispatching, the user company can acurtail employment costs and risks, and be more responsive to uncertainty in the changing environment. However, human resources dispatching has the inherent risk that talents will not be retained for the enterprise’s operation. Thus, such temporary employment should be used with caution. This study explores the enterprise’s (user company) use of traditional employment and human resources dispatching (using full-time employees and agency workers) from an agency perspective, and considers the relationship between agency problems and cost. This study also seeks to explore whether different employment relationships between full-time employees and agency workers entail different organizational commitments. Our propositions are that (a) full-time employees have stronger affective commitment than do agency workers, (b) agency workers relate more strongly to normative commitment than do full-time employees, and (c) full-time employees and agency workers are equally strong in continuance commitment. On this basis, this study sets out the managerial implications of human resources dispatching and recommends that the organizational commitment of agency workers be considered for future management of human resources dispatching. In this way, enterprises can pursue cost saving and flexible employment more effectively.

Keywords: agency theory, full-time employees, agency workers, organizational commitmen

Introduction

In modern times, temporary employment has been able to provide organizations with workforce flexibility, and to cause a reduction in labor costs. Human resources dispatching, a triangular arrangement relationship including employment agency, third party employing organization (user company) and temporary agency workers, is one critical form of temporary employment.

Human resources dispatching refers to the process in which agencies and temporary agency workers agree to a contract, after which the temporary agency workers begin working at the assigned workplace and provide labor as directed by corporation management. The difference between this and traditional employment modes is that, while temporary agency workers are employees of the employment agency, they must, on the other hand, work under the

management of a third party employing organization. This gap between actual employment and work is the main feature of temporary agency workers. The reason behind corporations of various nations utilizing flexible temporary agency workers is the desire to reduce management costs, hiring costs, supervision costs, and administration work. The main consideration for Taiwanese corporations in particular is the reduction of costs.

From a resource-based view, many scholars point out that employees are resources, organizational success depends on employees [1], and employees can help firms sustain their workforce capabilities [2]. By cooperating with human resources dispatching, a user company can avoid employment cost and risk, and can be more responsive to uncertainty in a changing environment. However, human resources dispatching runs the risk that talents cannot be retained for an enterprise’s operation. Thus, such temporary employment should be used with caution. In Taiwan, since the operation of human resources dispatching is still in its early stage, current labor laws do not contain effective laws and regulations regarding temporary agency worker employment. Thus, confusion about responsibility and roles often runs rampant. Also, corporations lack an effective way of delegating jobs between permanent employees and temporary agency workers. Due to a general lack of systematic thought and overall values regarding this matter, enterprises combining permanent employees and temporary agency workers often lack administrative direction and coordination. Because of these factors, the cost of human resources has actually increased instead of decreasing. In particular, there is concern about the lack of the consistent quality needed to satisfy the requirements of corporations due to the lack of technical ability of temporary agency workers. As there is much room for improvement, in this regard, determining how to use and manage temporary agency worker has become a important issue.

Beginning with the idea that temporary employment is considered secondary to permanent employment, the distinction between full and part-time employees has attracted considerable attention in both theoretical and applied literatures in economics, organizations, and sociology. However, permanent employees and temporary agency workers differ in many ways other than employment mode. Such differences include job satisfaction and organizational commitment. Since instructions and orders are separate from the rights of employment in the case of temporary employment relations, the agency relationship between the user company and temporary agency workers is more complicated than the one between the user company and permanent employees. With the lack of desirable incentives and effective

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2 supervision, management will need to know how to encourage temporary agency workers to generate positive organizational commitment. Thus, a question arises: what kind of organizational commitment is important between permanent employees and temporary agency workers?

Organizational commitment is a significant issue with respect to organizational management worldwide. Organizational commitment has been proposed, measured and tested for its association with other important outcomes, such as job performance, job satisfaction, turnover intention [3], and organizational effectiveness [4]. Accordingly, organizational commitment is a good indicator of employee performance in terms of organization and individual behavior. Therefore, it has become a critical issue for organizational management. However, most research focuses on full-time employees, and does not reflect the difference between permanent employees and temporary agency workers in organizational commitment. This is an area of research that needs to be investigated.

In addition, with regard to organizational commitment, research shows full- and part-time workers to be different, but the results are not inconsistent. They lack the meta-analysis of organizational commitment for different employment relationships. Therefore, this study pays attention to the distinction between permanent employees and temporary agency workers from the agency perspectives of agency problems and agency cost, in order to understand their employment relationship. This study also seeks to explain whether different employment relationships between permanent employees and temporary agency workers exhibit different organizational commitments.

Employment relationship: Permanent employment and human resources dispatching by agency perspective

Human resources dispatching is a triangular arrangement relationship including employment agency, third party employing organization (user company), and temporary agency workers. For user companies, the difference between this arrangement and traditional employment contracts is that temporary agency workers provide labor for them, but no employment contracts are signed. In other words, temporary agency workers have no direct contract with the user company, and the relationship between the two is limited to giving and receiving commands. Under the overlapping operation of the contract between temporary agency workers and employment agencies and the contract between employment agencies and user companies, temporary agency workers have an obligation to provide labor and services under the supervision and commands of the user company. In summary, this non-traditional employment relationship includes the externalization of administrative control and responsibility.

Although temporary agency workers are, in a legal sense, employees of the employment agency, the benefits created by their services are taken by the user company. Thus, the results of their work affect the overall performance of the employing corporation. It is indeed true that using employment agencies can help corporations obtain the professionals that they need and save on training costs. In the present environment of

global competition, in order to quickly respond to challenges, emphasizing flexible strategies in the workplace is necessary. However, this affects more than financial benefits for the company; It also implies a complete change in employment relationships. In order to effectively cut costs, corporations have begun to reduce the number of permanent employees in favor of greater numbers of temporary agency workers.

Propositions

Within the context of this study, the agency relationship is created between the principal and agents through contract agreements., The employment relationships are focused on the agency relationship between user company, permanent employees and temporary agency workers. The user company signs labor contracts with permanent employees, while the temporary agency workers of the bank sign their contracts with employment agencies. However, temporary agency workers must follow the commands of the bank. As can be seen, the banking industry has a different agency relationship between its permanent employees and its temporary agency workers. To be more exact, the user company has a direct agency relationship with permanent employees and an indirect one with temporary agency workers through the employment agency. Because the goals of the two principals, user company and employment agencies, differ, because of the information asymmetry that exists between the principal and the agent (temporary agency workers), and because of the difference in risk views, agency problems quickly surface and affect organizational performance.

Affective commitment refers to the feelings of people who rely on the organization, in relation to the recognition and investment shown by the organization and to employee loyalty and hard work, mainly when the organization has deep feelings, rather than merely material interests. With the origin of agency relationships, when information is less transparent, the more unclear employees are about the mission statement of their work. In order to ensure the achievement of organizational goals, more supervision and performance inspection are needed. On the other hand, due to the difference in goals between the two principals, employment agencies and user company, with regard to temporary agency workers and with user company cutting costs and the goal of employment agencies of gaining profits, agency worker employment benefits are often sacrificed. While permanent employees have opportunities for raises, stable job opportunities, and long-term employment as employee benefits, temporary agency workers have none of these. Due to this fact, temporary agency workers are more likely to be opportunistic and cover up their actual performance compared to full-time workers. Due to increased levels of information asymmetry on the part of temporary agency workers compared to full-time workers, increased supervision is necessary.

Proposition1: Permanent employees relate more strongly to affective commitment than do temporary agency workers.

When the external environment is unstable, such as the situation from the beginning of the 2008 financial crisis up to now, or as a result of the effects of a recession, temporary agency workers are often the first to be laid off. In order to obtain opportunities to be hired as permanent employees,

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3 temporary agency workers will often engage themselves more, such as voluntarily working extra hours. On the other hand, due to the flexible nature of an agency worker’s employment, an agency worker will need to meet the performance tests of the employment agency as well as the user company in order to be hired for the next period. Continuance commitment refers to employees leaving the organization; to preclude the loss of knowledge, the staff has to retain a commitment to the organization. Although, self-restraining costs are higher for temporary agency workers, as temporary agency workers need to gain the approval of both the user company and their employment agencies, while permanent employees only need to meet to needs of the bank, they all want to remain with the organization. Thus, we have this proposition.

Proposition2: Permanent employees’ and agency workers’ focus have equally strong effects on continuance commitment.

From a risk perspective, the banking industry highly values and protects company secrets. Once an employee leaks a company secret, the company is in an unfavorable position, especially on the grounds of reputation. That is to say, if an employee leaks a company secret, the bank will have to undergo a relatively large risk. Due to this fact, user companies require suitable mechanisms and regulations to prevent employees from leaking company secrets. This leads to supervision costs.

Normative commitment reflects the fact that employees remain in the organization with a sense of obligation. It is the employees’ custom, due to the formation of long-term social impact of social responsibility and commitment, to stay within the organization. Due to the general approval of company culture by permanent employees, permanent employees are more likely to keep company secrets, compared to temporary agency workers. On the other hand, if company secrets are indeed leaked, temporary agency workers face the risk of being replaced. However, the benefits forfeited by a full-time employee after being fired are still higher than the risks undertaken by temporary agency workers. At the same time, corporations have a more complete and efficient method of managing permanent employees, and can reward or punish them accordingly. Permanent employees do not require a separate set of regulations for management. As can be seen from the above, the higher the risk to employees, the lower supervision costs have to be. Drawing from the employment relationship differences, the proposition for normative commitment is as follows:

Proposition3: Temporary agency workers relate more strongly to normative commitment than do permanent employees.

Conclusion

Based on the above discussion, the present study recommends that the enterprise using temporary agency workers should clarify the agency relationship derived from the traditional and triangular arrangement relationship. On the other hand, based on a comprehensive model linking commitment to work motivation [5], the relationship shows that all three components of commitment are associated with motivational effort toward goal attainment. However, temporary agency workers face dual agency relationships,

including loss motivation and more risk than do permanent employees. We argued for a more nuanced pattern of predictions regarding the links between employment relationship and commitment. Specifically, we predicted that permanent employees relate more strongly to affective commitment than temporary agency workers, and that temporary agency workers relate more strongly to normative commitment than permanent employees do. In contrast, we predicted that permanent employees’ and agency workers’ focus had equally strong effects on continuance commitment.

Limitation and future study development

Finally, this study seeks to investigate the organizational commitments derived from the employment relationship. The banking industry in Taiwan has employed the largest number of temporary agency workers. Hence, the present study plans to collect data from the banking industry. The organizational commitment scale developed by Meyer, Allen and Smith (1993) [6] will be used in this study to examine the relationship between employment relationship and organizational commitment.

Specifically, the present study contributes to the extant agency theory literature by understanding the differences in employment relationships, and incorporating the organizational commitment as a potential output.

In the future, this study will add objective measuring standards and the perspective of employment agencies in order to construct a more complete analytical mode and to provide more solid reference. Finally, research aimed at testing these possible explanations will help provide a greater understanding of the differences and similarities between permanent employees and temporary agency workers.

References

1. Cooper-Hakim, A., Viswesvaran, C., The construct of work commitment: Testing and integrative framework,

Psychological Bulletin, Vol. 131,No. 2 (2005), pp.

241-259.

2. Gellatly, I. R., Hunter, K. H., Currie, L. G., & Irving, P. G., HRM practices and organizational commitment profiles,

The International Journal of Human Resource Management, Vol. 20, No. 4 (2009), 869-884.

3. Jaros, S. J., An assessment of Meyer and Allen’s (1991) three-component model of organizational commitment and turnover intentions. Journal of Vocational Behavior, Vol. 51 (1997), pp.319–337.

4. Angle, H. L, & Perry, J. L., An empirical assessment of organizational commitment and organizational effectiveness, Administrative Science Quarterly, Vol. 27 (1981), pp. 1-14.

5. Meyer, J.P., Becker,T.E., & Vandenberghe, C., Employee

Commitment and Motivation: A Conceptual Analysis and Integrative Model, Journal of Applied Psychology, Vol.

89, No. 6 (2004), pp. 992-1007.

6. Meyer, J. P, Allen, N.J., & Smith, K. A., Commitment to organizations and occupations: Extension and test of a three-component conceptualization, Journal of Applied

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