What is psychological contract? To what extent is psychological contract applicable in the 21st century? Psychological contract, not written compared to legal contract, is mostly accepted by the two parties in the employment. In 21st century, since the nature of work has experienced a great change, psychological contract, which seems to have new content, is paid more attention to than before. It appears that a fair and positive psychological contract may contribute to success of a business. The first session of the essay will define what psychological contract is.

The second session will discuss the changes of the psychological contract in 21st century, and the third will show how psychological contract is applicable in business in this new century. The following section will discuss why the psychological contract is not applicable in some situations. Psychological contract, first emerged in the 1960s, and became more popular among academic field following the economic recession in the early 1990s. It is primarily defined as a mutual relation and expectation between employers and employees, and also refers to obligation between two parties.

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Compared to legal contract of employment, psychological contract is informal, but may have more influence on employees’ daily behavior. The theory of the psychological contract is widely applied to human relationships and wider society, such as the relationship between employees and employers, or a supplier and its customers in recent years. (The psychological contract, n. d. ) It is evident that psychological contract in 21st century differs from that of the previous period.

Since modern technology (for example, internet and mobile phone) has been introduced and the structure of organization changed, Guest (1998) argues that the traditional relation of providing a secure job, a fair payment and reliable pensions in the entrepreneurs in return for loyalty and good performance is replaced. Employers and employees have adjusted their expectations towards their counterparts. For example, in current years, employers expect the employees to work harder than before and learn more skills to perform well, while the employees want to acquire sufficient employee rights and better career development.

In a global company, employees are even required to work around the world, far more beyond their expectation. This tendency occurred in the late 1980’s, and is more obvious when entering the 21st century. Hauw and Vos (2010) also demonstrate that Millennial generation (born after 1981) is more influenced by characteristics such as optimism and careerism when they grow up to acquire a job, not just by job security and payment. These young people are aware of increasing flexibility of jobs. As they are more likely to find alternative jobs, employees have more power to balance the relationships with employers.

Employees can change work instead of lifelong employment if they consider they are unfairly treated. This new psychological contract is quite applicable in many competitive modern enterprises to develop the efficiency of human resources in the 21st century. It is widely accepted that a balanced and fair psychological contract can make business practices more effective. According to McGregor’s theory (1960), modern enlightened leaders are more likely to understand the theory of psychological contract and to develop a positive approach to achieve a fair psychological contract.

For example, a number of high technology companies such as Facebook, You Tube have been established in this new century. In these companies, employees with particular skills and expertise are increasingly recognised as more critical business drivers than capital. It is clear that these employees, who are fulfilled with good welfare and a work life balance, are more likely to perform well. Companies, which succeed in maintaining employee commitment, may retain competitive employees and make more profits. However, some external factors such as economic recession may bring about negative effect on psychological contract.

An example of this is the global economy recession in 2008. This recession has generated bad influence on employee attitudes, including job dissatisfaction and insecurity. Organization leaders may have challenge to fulfill employee commitment. (The psychological contract, n. d. ) Although psychological contract is paid more attention to in 21st century, it is still not applicable in some situations. Guest and Conway (2002) suggest that the contract is base on employees’ and employers’ belief, and ‘the extent to which employers adopt people management practices will influence the state of the psychological contract’.

In 21st century, there are still many family companies with some autocratic shareholders. Psychological contract may be not quite applicable in these hierarchical companies. In addition, as the liberal professionals such as writers, reporters do not have tight relationship with employers; the professionals do not need to reply on the employers. That is to say, psychological contract may not exist in this situation. This essay has shown the application of psychological contract in 21st century.

Compared to the old generation, the new psychological contract is more complicated. It can be suggested that psychological contract should be paid more attention to organize business. However, this essay has only discussed the application in business. One possible field for further research would be to discuss whether psychological contract is easier to be violated in modern society because of the complexity. References Guest, D. E. (1998) Is the psychological contract worth taking seriously? Journal of Organizational Behavior 19, 649- 664 (1998) Guest, D.

E. and Conway, N. (2002) Pressure at work and the psychological contract. London: CIPD. Hauw, D. and Vos, D. (2010) Millennials’ Career Perspective and Psychological Contract Expectations: Does the Recession Lead to Lowered Expectations? Journal of Business and Psychology doi:10. 1007 /s10869-010-9162-9(2010) McGregor (1960) The human side of enterprise. New York: McGraw Hill Cipd (n. d. ) The psychological contract. Available at http://www. cipd. co. uk/hr-resources/factsheets/psychological-contract. aspx [Accessed 8 August 2011].