Trust and Cooperation in Labor-Management Relations

We review the literature on trust and cooperation with application to labour-management relations. We begin with the neo-classical economic view of self-regarding individuals operating with perfect information and show that once one abandons the dyadic case with perfect information, cooperation deteriorates as group size increases and the probability of behavioural or perceptual error rises. We show that self-regarding models have no way of explaining cooperative outcomes between management and labour under typical conditions and lead to less optimal forms of non-cooperative strategic bargaining. By way of contrast, models of cooperation with other-regarding preferences and trust – drawn from behavioural economics, social psychological, economic sociology and industrial relations literatures – show that a high level of cooperation can be attained even in large groups, with modest informational requirements, and that conditions allowing the evolution of trust and other-regarding social preferences are plausible and find empirical support. We also show that actors’ perceptions of the employment relationship underpin assumptions of human nature, which is what inevitably determines strategies used in labour-management relations.