What drives employment relationships in taxicab organizations? Linking agency to firm capabilities and strategic opportunities

Agency theorists argue that organizations typically get little value from using employees and that they should instead use nonemployees operating fully as residual claimants. Yet, even in a context where those theorists would predict virtually no employees – taxicab organizations – they are common. What drives the use of employment relationships in these organizations? The authors show how employment relationships are linked to firm capabilities and strategic opportunities in a sample of taxicab organizations, relying on arguments about the linkage of employment to the internal liquidity of labor, organizational routines, and internal cooperation. The theoretical arguments and findings suggest what organizations gain by having employment relationships and show that integrating the agency theoretic argument with the other theoretical arguments leads toward a resource-based view of strategy and human resources. The authors highlight the importance of embedding arguments on the internal management of human resources in the strategic and competitive context in which organizations operate. Their arguments also have implications for the resource-based approach to strategy in mapping the resource space of human assets in organizations and, within that space, directing attention to how organizations gain sustainable competitive advantage through managing human resources.