LESSON 24:
FIRM’S DUTIES TO THE EMPLOYEE
Today, we will discuss the employer’s duties towards the
employee.
Points to be covered in this lesson:
• Employee compensation
• Working conditions
Can you think of some of the duties of employers or the firm
towards the employee? In the last lecture we discussed some of
the duties of employees towards the firm and the ways in which
they fail to live up to the duties, to pursue the goals of
the firm.
I will try to list down some of the duties of the employers
now:
1. Compensation or Wages
2. Job satisfaction
3. Working environment
4. Job profile
5. Health and Safety
6. Growth prospects
7. Job Rotation
The basic moral obligation that the employer has toward
employees, accord-ing to the rational view of the firm, is to
provide them with the compensation they have freely and
knowingly agreed to receive in exchange for their ser-vices.
There are two main issues related to this obligation:
• The fairness of wages and
• The fairness of employee working conditions.
Both wages and working conditions are aspects of the compen-
sation employees receive from their services, and both are related
to the question of whether or not the em-ployee contracted to
take a job freely and knowingly. If an employee was “forced” to
accept a job with inadequate wages or inad- equate working condi-
tions, then the work contract would be unfair.
Wages
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From the employee’s point of view, wages are the principal
(perhaps the only) means for satisfying the basic economic
needs of the worker and the worker’s family. From the
employer’s point of view, wages are a cost of production that
must be kept down lest the product be priced out of the mar-
ket. Every employer, therefore, faces the dilemma of setting fair
wages: How can a fair balance be struck between the employer’s
interests in minimizing costs and the workers’ interest in
providing a decent living for themselves and their families?
There is, unfortunately, no simple formula for determining a
“fair wage”. The fairness of wages depends in part on the public
supports that society pro-vides the worker (social security,
Medicare, unemployment compensation, public education,
welfare, etc.), on the freedom of labor markets, on the con-
tribution of the worker, on the needs of the worker, and on the
competitive po-sition of the firm.
Although there is no way of determining fair salaries with
mathematical exactitude, we can at least identify a number of
factors that should be taken into account in determining wages
and salaries:
1. The going wage in the industry and the area Although
labor markets in an in-dustry or an area may be manipulated
or distorted (by job shortages, for exam-ple), they generally
provide at least rough indicators of fair wages if they are
competitive and if we assume competitive markets are just.
In addition, the cost of living in the area must be taken into
account if employees are to be provided with an income
adequate to their families needs.
2. The firm’s capabilities In general, the higher the firm’s
profits, the more it can and should pay its workers, while the
smaller its profits, the less it can afford. Taking advantage of
cheap labor in captive markets when a company is perfectly
capable of paying higher wages is exploitation.
3. The nature of the job Jobs that involve greater health risks,
that offer less security, that require more training or
experience, that impose heavier physical or emotional burdens,
or that take greater effort should carry higher levels of
compensation.
4. Minimum wage laws The minimum wages required by law
set a floor for wages.
In most circumstances, wages that fall beneath this floor are
unfair.
5. Relation to other salaries If the salary structure within an
organization is to be fair, workers who do roughly similar
work should receive roughly similar salaries.
6. The fairness of wage negotiations Salaries and wages that
result from “unfree” negotiations in which one side uses
fraud, power, ignorance, deceit, or passion to get its way will
rarely be fair. When the management of a company, for
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 exam-ple, uses the threat of relocation to force wage
concessions out of a wholly de-pendent community, or when
a union “blackmails” a failing company with a strike that is
certain to send the firm into bankruptcy, the resulting wages
have little likelihood of being fair.
Working Conditions: Health and Safety
Each year more than 5000 workers are killed and over 3,000,000
are se-riously injured as a result of job accidents. Ten percent of
the job force suf-fers a job-related injury or illness each year, for a
loss of over 31 million workdays annually. Delayed occupa- tional
diseases resulting from exposure to chem-ical and physical
hazards till off additional numbers. Annual costs of work related
deaths and injuries were estimated to be $119 billion in 1995.
Workplace hazards include not only the more obvious catego-
ries of me-chanical injury, electrocution, and burns, but also
extreme heat and cold, noisy machinery, rock dust, textile fiber
dust, chemical fumes, mercury, lead, beryl-lium, arsenic, corrosives,
poisons, skin irritants, and radiation. A government description
of occupational injuries is dismaying.
Three and a half million American workers exposed to asbestos
face a dual threat: Not only are they subject to the lung-scarring
pneumoconiosis of their trade, asbestosis, but they are
endangered by lung cancer associated with in-halation of asbestos
fibers. Recent studies of insulation workers in two states showed
1 in 5 deaths were from lung cancer, seven times the expected rate;
half of those with twenty years or more in the trade had x-ray
evidence of asbesto-sis; 1 in 10 deaths were caused by
mesothelioma, a rare malignancy of the lung or
pleura which strikes only 1 in 10,000 in the general working
population. Of 6000 men who have been uranium miners, an
estimated 600 to 1100 will die dur-ing the next twenty years as a
result of radiation exposure, principally from lung cancer. Fifty
percent of the machines in industry generate noise levels
potentially harmful to hearing. Hundreds of thousands of
workers each year suffer skin dis-eases from contact with materials
used in their work. The dermatoses are the most common of all
occupational illnesses. Even the old, well- known industrial
poisons, such as mercury, arsenic, and lead, still cause trouble. In
India also, the places where too much of health hazards workers
face are the coalmines, fire crackers manufacturing unit and lime
manufacturing units.
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In 1970 Congress passed the Occupational Safety and Health Act
and cre-ated the Occupational Safety and Health Adminis-
tration (OSHA) “to assure as far as possible every working man
and woman in the nation safe and healthful working condi-
tions.” Unfortunately, from the beginning OSHA found itself
embroiled in controversy. But in spite of the severe criticism it
has received, an inadequate number of field inspectors (800),
and often-inefficient forms of regulation, the existence of
OSHA has led many firms to institute their own safety
programs. One poll revealed that 36 percent of the firms
surveyed had implemented safety programs as a result of
OSHA, while 72 percent said that the existence of OSHA had
influenced them in their safety efforts.
Although more attention is now being paid to worker safety,
occupational accident rates have not all been declining. Between
1960 and 1993, the num-ber of workers killed on the job
declined dramatically from 21 deaths per 100,000 workers to 8
deaths per 100,000. However, the number of disabling injuries
rose from 2.0 million in 1960 to 3.2 million in 1993.
Risk is, of course, an unavoidable part of many occupations. A
racecar driver, a circus performer, a rodeo cowboy, all accepts
certain hazards as part of their jobs. So long as they
1. Are fully compensated for assuming these risks and
2. Freely and knowingly choose to accept the risk in exchange
for the added compensation, and then we may assume that
their employer has acted ethically.
The basic problem, however, is that in many hazardous
occupations, these conditions do not obtain.
1. Wages will fail to provide a level of compensation
proportional to the risks of a job when labor markets in an
industry are not competitive, or when markets do not reg-
ister risks because the risks are not yet known. In some rural
mining areas, for ex-ample, a single mining company may
have a monopoly on jobs. The health risks involved in
mining a certain mineral (such as uranium) may not be
known until many years afterwards. In such cases, wages will
not fully compensate for risks.
2. Workers might accept risks unknowingly because they do not
have adequate ac-cess to information concerning those risks.
Collecting information on the risks of handling certain
chemicals, for example, takes up a great deal of time, effort,
and money. Workers acting individually may find it too costly,
therefore, to collect the information needed to assess the risks
of the jobs they accept.
3. Workers might accept known risks out of desperation
because they lack the mobility to enter other less risky
industries or because they lack information on the
alternatives available to them. Low-income coal miners, for
example, may know the hazards inherent in coal mining, but
since they lack the resources needed to travel elsewhere, they
may be forced to either take a job in a coal mine or starve.
When any of the three conditions obtain, then the contract
between employer and employee is no longer fair; the employer
has a duty, in such cases, to take steps to ensure that the worker
is not being unfairly manipulated into accepting a risk unknow-
ingly, unwillingly, or without due compensation. In particular:
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1. Employers should offer wages that reflect the risk-premium
prevalent in other similar but competitive labor markets.
2. To insure their workers against unknown hazards the
employer should provide them with suitable health
insurance programs.
3. Employers should (singly or together with other firms)
collect information on the health hazards that accompany a
given job and make all such information avail- able to
workers.
Working Conditions: Job Satisfaction
‘The rational parts of the organization put a high value on
efficiency: All jobs, all tasks, are to be designed so as to achieve
the organization’s goals as efficiently as possible. When efficiency
is achieved through specialization, the rational aspects of
organizations tend to incorporate highly specialized jobs.
Jobs can be specialized along two dimensions:
• Jobs can be specialized horizontally by restricting the range
of different tasks contained in the job and increasing the
repetition of this narrow range of tasks.
• Jobs can also be specialized vertically by restricting the range of
con-trol and decision making over the activity that the job
involves. Whereas, the job of the spot-welder is highly
specialized vertically, the job of the plant man-ager is much less
vertically specialized.
Job specialization is most obvious at the operating levels of
organiza-tions. Assembly-line work usually consists of closely
supervised, repetitive, and simple tasks. Low-level clerical jobs
also tend to be fragmented, repeti-tive, dull, and closely
monitored as this example shows.
I worked for a while at the Fair Plan Insurance Company, where
hundreds of women sat typing up and breaking down
sextuplicate insurance forms. My job was in endorsements: First,
third, and fourth copies staple together/place the pink sheet in
back of the yellow/If the endorsement shows a new
mortgagee/stamp the fifth copy” certificate needed. . .” Other
sections, like coding, checks, filing, and endorsement typing, did
similar subdivided parts of the paperwork. The women in the
other sections sat at steel desks like mine, each working separately
on a tack of forms or cards. Every section had a supervisor who
counted and checked the work. She recorded
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the number of pieces we completed, and the number of errors
we made, on our individual production sheets. These produc-
tion sheets were the basis for our periodic merit raises. Aside
from counting and checking, the supervisor also tried to curtail
talking and eating at desks.
The debilitating effects that job specialization can have on
workers were first noted over two hundred years ago by Adam
Smith when he wrote:
In the progress of the division of labor, the employment of the
far greater part of those who live by labor, that is, of the great
body of the people, comes to be con-firmed to a few very simple
operations, frequently to one or two. But the under- standings
of the greater part of men are necessarily formed by their
ordinary employments. The man whose whole life is spent in
performing a few simple op-erations has no occasion to exert his
understanding. . . . He naturally loses, there-fore, the habit
of such exertion and generally becomes as stupid and ignorant
as it is possible for a human creature to become. . . . It corrupts
even the activity of his body, and renders him incapable of
exerting his strength with vigor and per-severance, in any other
employment than that to which he has been bred.
More recent research on the mental health of assembly-line
workers has tended to corroberate Smith’s early suspicions. In a
study of auto workers, for exam-ple, A. W. Kornhauser found
that about 40 percent suffered some sort of men-tal health
problem and that only 18 percent could be considered to have
“good mental health. “A later study found that many American
workers suffered from ulcers, lack of self-esteem, anxiety, and
other psychological and psycho-somatic diseases. In a survey of
fifteen years of research on job satisfaction, Stanislav Kasl
found that, among other factors, low job satisfaction was
related to “lack of control over work; inability to use skills and
abilities; highly frac-tionated, repetitive tasks involving few
diverse operations; no participation in decision-making,” and
that poor mental health was related to similar factors.
Not all workers are equally affected by job specialization. Older
workers and workers in large urban areas seem to show more
tolerance for routine mo-notonous jobs, apparently because
older workers scale down their expectations over the years, while
urban workers reject the Puritan work ethic and prefer not to
become involved in their work. Nonetheless, only 24 percent of
all blue-collar workers would choose the same type of work if
they could start all over again, an indication that a substantial
portion of workers do not find their jobs intrinsically satisfying.
The injuries that highly specialized work has on the well-being
of work-ers poses an important problem of justice for
employees. The most narrowly specialized forms of work are
those that require the least skills (since one of the functions of
specialization is to dispense of the need for training). And un-
skilled labor, of course, commands the lowest levels of
compensation. As a consequence, the psychological costs of dull,
meaningless, and repetitive work tend to be borne by the group
of workers that is paid least: unskilled laborers.
Not only may the injuries of specialization be inequitable, they
are often also related to a lack of freedom. Unskilled workers
often have no real free-dom of choice: They must either accept
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work that is meaningless and debili-tating or else not work at provide them with the compensation they have freely and
all. The freedom that is essential to a fair work contract is, knowingly agreed to receive in exchange for their ser-vices.
therefore, often absent. There are two main issues related to this obligation: fairness
Excessive job specialization is undesirable for other reasons of wages, and fairness of employee working conditions.
than that it places unjust burdens on workers. There is also Activity
considerable evidence that it does not contribute to efficiency. Discuss the factors that should be considered to determine
Research findings have demonstrated that there is a linkage wages and salaries of employees.
between worker productivity and programs that improve the
quality of work life for workers by giving workers greater
involvement in and control over a variety of work tasks.
How should these problems of job dissatisfaction and mental
injury be dealt with? A few years ago, Hackman, Oldham, Jansen,
and Purdy argued that there are three determinants of job
satisfaction:
Experienced Meaningfulness. The individual must perceive his
work as worth- while or important by some system of values he
accepts.
Experienced Responsibility. He must believe that he personally is
accountable for the outcome of his efforts.
Knowledge of Results. He must be able to determine, on some
regular basis, whether or not the outcomes of his work are
satisfactory.
To influence these three determinants, the authors claim, jobs
must be ex-panded along five dimensions:
1. Skill Variety the degree to which a job requires the worker to
perform activities that challenge his skills and abilities.
2. Task Identity the degree to which the job requires a
completion of a whole and identifiable piece of work—
doing a job from beginning to end with a visible outcome.
3. Task Significance the degree to which the job has a substantial
and perceivable impact on lives of other people, whether in
the immediate organization or the world at large.
4. Autonomy the degree to which the job gives the worker
freedom, independence, and discretion in scheduling work
and determining how he will carry it out.
5. Feedback the degree to which a worker, in carrying out the
work activities re-quired by the job, gets information about
the effectiveness of his efforts.
In short, the solution to job dissatisfaction is perceivable
enlargement of the narrowly specialized jobs that give rise to
dissatisfaction: broadening the job “horizontally” by giving the
employee a wider variety of tasks, and deepening the job
“vertically” by allowing the employee more perceivable control
over these tasks. Jobs can be horizontally enlarged, for example,
by replacing sin-gle workers performing single repetitive tasks
with teams of three or four who are jointly responsible for the
complete assembly of a certain number of ma-chines. Delegat-
ing to the team the responsibility of determining their own
work assignments, work breaks, and inspection procedures can
vertically enlarge such team jobs.
Overview
• The basic moral obligation that the employer has toward
employees, accord-ing to the rational view of the firm, is to

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