Cost-cutting actions, employment relations and workplace grievances: Lessons from the 2008 financial crisis

Abstract

Periods of economic recession are typically accompanied by the use of cost-cutting actions, such as wage cuts or freezes, increased workloads and reduced training expenditures. While such actions are expected to boost performance, at least in the short-term, their effects on employee attitudes and behaviours at work have been the subject of much research. In this study, we examine how management's use of cost-cutting actions could have a detrimental impact on two aspects of the employment relations climate—the quality of employee–management relations and the level of employees’ trust in management; further, we investigate how these relationships might lead to an increase in employee complaints against their organisations. Using multilevel data from 21,981 employees in 1,923 workplaces, we show that the use of cost-cutting actions violates the psychological contract, which, in turn, contributes to strained relations between employees and management. However, in workplaces where employees are actively involved in decision-making, cost-cutting actions are less likely to have a negative impact. We discuss the theoretical and practical implications of our study using psychological contract theory.