Final answer:
The expectation of a fair exchange of employment obligations between an employee and employer is called a psychological contract. It includes informal, unwritten expectations and obligations and influences wage-setting behavior as a form of mutual insurance in economic fluctuations.
Step-by-step explanation:
The correct answer to the student's question is b. a psychological contract. A psychological contract refers to the unwritten set of expectations of the employment relationship as distinct from the formal, codified employment contract. It encompasses a range of mutual beliefs, perceptions, and informal obligations between an employer and an employee. For example, it might include the employer's expectation that the employee will perform their job to a certain standard, and the employee's expectation of fair pay and job security.
Understanding the concept of a psychological contract is essential, as it can significantly affect workplace outcomes. This implicit contract acts like a form of insurance, safeguarding an employee against wage declines during tough economic conditions while implying that employees shouldn't expect excessive wage increases during boom periods for the economy or business. This two-way exchange builds upon the trust and loyalty between the employer and employee, with both parties looking after each other's interests to maintain a productive working relationship.