Tepper School of Business, Carnegie Mellon University, Pittsburgh, PA, USA b School of Information,

The University of Texas at Austin, Austin, TX, USA

In today's world Artificial intelligence (AI) is increasing in making decisions that humans used to
make. These decisions are implications for work, policymaking, and society. In many organizations
AI-based software makes decisions throughout the employee management cycle. They have AI hiring
platforms that identify job candidates and evaluate them by analyzing their applications and video
interviews, the chatbots assist the employee hiring and onboarding process by answering questions
and explaining organizational benefits. The algorithmic software allocates work shifts, evaluates
employee performance, and predicts employee attrition in the organization. The introduction and
increasing use of AI applications for employee management has changed how organizations
communicate with their employees. The traditional interactions between managers and employees
today are automated, and the decision makers are algorithms or software instead of humans. This
change have transformed how employees and organizations establish and maintain their
relationships, namely the employees psychological contracts. Employees are obliged to organizations
and are committed to uphold and deliver through interactions with their managers and other
organizational representatives. The obligations include commitments to encouragements such as
secure employment, salary and incentives on par with industry standards, career advancement
opportunities, and support for personal problems. Previous researches have suggested that when
employees think that their psychological contract is honored it results in increased job satisfaction,
work performance, and motivation to stay in their organization. But if it's breached it will result in
reduced performance and will consider leaving the organization. However how AI will affect
employees in such cases is a big question. This research aimed on AI and algorithmic management at
work and psychological contracts. The research sets out to see if people think algorithms and AI
software’s as contract makers and the extent to which employers perceive their commitment
through interactions with their systems. Second it examines how these algorithmic management
may affect employees psychological contract when employers fail to deliver their obligations. Incase
there is a breach or violation it may result in anger and resentment against the employer. This may
be costly for both the employee and the employer. The researcher investigate how an employee
responds when the algorithmic management systems or AI fail to deliver organizational obligations
and how it contributes to one's employment relationship. Today algorithmic systems can automate
management practices and perform complex tasks that traditionally were the responsibility of top
and middle management. It has six main responsibilities that is to provide direction to employees,
evaluating employees via rating and recording and disciplining them via replacement and reward.
Automation provides boost to efficiency and scalability. It helps organizations to scan thousands of
resumes quickly and it also helps them to be cost effective and provide high return on investment.
Many organizations use automation to scale up hiring and predict job satisfaction and employee
turnover. However hiring of employees via automated software is seen negatively by employees as
they think they are less fair compared to humans. Also employees trust more to their employers of
the organization when it comes to the psychological contract between them. As it also helps in
strengthening the bond between the two. However algorithmic systems are preferred for few tasks
like weather and business forecast, allocating tasks and also to mechanical data. Also the relational
inducement and transactional inducement have different about algorithmic systems. Relational
inducement is related to sociemotional exchange and thus humans are more trusted than artificial
intelligence. Whereas transactional inducement involves economic decisions where AI is more
trusted. Automation also have less impact if they fail to uphold or breach the psychological contract.
The research showed how individuals form and evaluate their psychological contracts with an
algorithmic system versus human. This also depends on relational inducements or transactional
inducements. In this study employees showed greater employer commitments when the human
explained relational inducements and it also showed greater breach if the contract was breached.
The employees showed high turnover intentions when the psychological contract was breached or
violated regardless of the inducement type compared to AI. AI is a latest technological
transformation but for few decisions there is a high degree of understanding and human feelings
required that is not in the case of AI. AI can be used for mechanical decision that includes various
data and forecasting. But for decisions like employee development, health care and working
conditions humans are required to play a major role. If the managers of the organization uphold the
psychological contract and look after well being of the employees will further strengthen the
employee-employer relationship in the organisation.