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US Auto Industry’s 2-tier Wage System

By Louis Rumao

A two-tier system is a type of payroll system in which one group of workers receives lower wages and/or benefits than another. The two-tier system of wages is mainly established when an employer wishes to reduce overall wage costs by hiring new employees at a wage less than incumbent senior workers. Two-tier systems became more common in most industrialised economies in the late 1980s. They are particularly attractive to companies which have high rates of turnover among new hires (such as retail) or companies which have large numbers of high-wage, high-skilled older workers and need to control cost.Louis_Rumao

Although trade unions generally seek to reduce wage disparity (the differences in wages between workers doing the same job), such two-tier wage systems are often economically attractive to both employers and unions. Employers see immediate reductions in the cost of hiring new workers, and existing union members see no wage reduction. Unions also find two-tier wage systems attractive because they encourage the employer to hire more workers.

At present, pay of hourly auto workers starts at $14 an hour for entry level and rises over time to more than $19. Veteran workers (those hired under the 2003 and earlier contracts) are paid over $28 an hour. Also, under the existing agreement, there are restrictions on newer workers transitioning to the “veteran” worker status. The entry-level $14/hr wage amounts to about $28,000 annual salary. However, this is much less than the $44,000, considered a “living wage” for a family of four (two parents and two children), prompting unions and social engineers to complain that the entry-level wage puts a worker into poverty!

Full text in PTA Dec/Jan issue

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