THE WAGES OF TRUST

Abstract

In this paper it is argued that the assumptions of the neoclassical and wage efficiency models do not adequately explain the governance structure of employment relationships. Trust may be a constituent element of at least some employment relationships, e.g. those of child minders. According to the tradition of research in social science, trust is established by gifts. It is argued that in employment relationships in which both employer and employee have a gain and damage potential, gifts will be used to establish a trust relationship. This argument helps to produce new hypotheses about wages and allocation in employment relationships. The model is elaborated for the employment relationships of child minders. It is shown that it is not only job and human capital characteristics that determine wages, but also the financial resources of the parents (or employers). In addition, more personal means of exchange are used to establish trust relationships. It is concluded that the trust argument helps to explain different governance structures in employment relationships.