A Level Paying Field in Detroit

A looming labor showdown in Detroit over the two-tier wage system will be an important battleground in the future of labor relations.

When the Labor Day barbecues end and Detroit’s autoworkers return to the factories after a long weekend in early September, representatives of the United Auto Workers and the Detroit Three automakers will begin negotiating new labor contracts.

Before negotiations begin, however, lawyers from both sides will spend the months leading up to the bargaining sessions poring over the current contracts to determine their respective goals.

‘The two-tiered wage system is easy to get into and difficult to get out of. Essentially, it’s an embarrassment to unions.’

—Gary Chaison, professor of industrial relations at Clark University

“And then there’s Labor Day and the unions march all over the place. But after that, the negotiators come back to the table and start pulling all-nighters,” said Kristin Dziczek, a director at the Center for Automotive Research in Ann Arbor, Michigan.

The two-tier wage system in place at Ford Motor Co., General Motors Co. and Fiat Chrysler Automobiles — collectively known as the Detroit Three — is expected to be a major focus of those talks. The upcoming contracts will take the place of the deals agreed upon in 2007, which installed the two-tier wage system.

In that system senior employees are entitled to a higher hourly wage with benefits. Entry-level workers earn a lower — sometimes significantly so — hourly wage for the same job. As a result, the system can lead to unrest among a company’s workforce.

Origins of the Two Tiers

The two-tier wage system was first implemented in the United States in 1983 by American Airlines Inc. During the early 1980s, a period of widespread deindustrialization in North America, and concession bargaining often led to such compensation agreements, according to a 2012 report by Michael Mac Neil, associate professor of labor studies at Carleton University in Ottawa, Ontario.

The tiered wage agreements ranged across a variety of industries, with the airline industry pacts getting the most attention, and took diverse forms. Some applied almost universally to all job categories within an organization while others were more selective. Some pay structures were designed to be permanent, and others temporary. Some focused on wages only, and others delayed or reduced benefits as well, according to Mac Neil’s report.

The movement to eliminate two-tiered wages isalready underway. UAW members at a Lear plant in Hammond, Indiana, were mostly successful in getting rid of the pay structure in 2014. The Hammond Lear plant no longer has a two-tier wage system, but 130 low-seniority workers were moved to another nearby Lear factory with lower wages.

Before the UAW agreed to the tiered pay structure in 2007, the average worker cost GM about $79 per hour in wages and benefits. Today, that figure is down to about $59, largely because of the growing number of entry-level positions entering the system, Dziczek said. Typical entry-level workers at any of the Detroit Three plants earn a wage between $16 and $19 per hour, and workers in warehousing and distribution positions make about $15 to $18 per hour, she said.

One Down in Two-Tier Wage Debate

The push to end the two-tier wage system in Detroit Three auto plants may have gained momentum last September when Lear Corp. and its organized workforce voted to remove the structured pay system from its plant in Hammond, Indiana.

By ratifying the four-year deal, members of the United Auto Workers at the plant will earn more than $21 an hour by the end of the contract. The new pact came a week after a one-day strike shuttered the plant, which makes seats for Ford Explorer and Taurus vehicles produced at Ford Motor Co.’s Chicago assembly plant.

In a typical two-tier wage system, senior employees areentitledto a higher hourly wage with better benefits, while entry-level workers earn a lower hourly wage for the samejob.

Under the deal at Lear’s Hammond plant, wages will start at $16.50 and rise to $21.58 by the end of the agreement. By the end of the deal, many workers will earn betweennearly $16,000 and $19,000 a year more than they do now,according to the UAW. 

“The tide is turning for auto-parts workers, who, for too long, have been stuck with fast-food-like wages,” said Jaime Luna, president of UAW Local 2335 and 19-year veteran at the Lear plant in Hammond, in a written statement. “The agreement is a victory not just for the workers at our plant, but for thousands of auto workers across the country who do the same hard work we do and will benefit from the higher standard we achieved by taking a stand in Hammond.”

While the UAW is touting the elimination of the two-tiered system at Lear’s Hammond plant as a victory for all autoworkers, the reality of the contract illustrates the difficulty labor unions face in completely abolishing the pay system from bargaining agreements.

Of the 715 workers at Lear’s Hammond plant, 130 of the lowest seniority will be required to relocate to another plant nearby to perform work at a lower wage rate. The new plant is considered a subassembly components facility.

According to one expert, this kind of division of labor — and pay — within a seating manufacturing company is nothing new, nor is it necessarily indicative of what will happen next fall with the Detroit Three contract negotiations.

“Lear Hammond is not really a pattern for the Detroit Three. It was a pattern within seating manufacturing,” said Kristin Dziczek, a director at the Center for Automotive Research in Ann Arbor, Michigan. “Most seating companies have their components business separate from their assembly business. So there is still a two-tier system, just not within the same plant. It’s hard to fully end two-tier when a significant portion of your workforce is making the lower-tiered wage.”

—Max Mihelich

The two-tier wage system can create a myriad of problems within the workplace. Gary Chaison, professor of industrial relations at Clark University in Worchester, Massachusetts, said the problems are both economical and ideological. The system creates economic worries because the differences in pay can lead to feelings of unfairness between various classes of workers. Those feelings of unfairness lead to the underlying ideological problem, Chaison said: A two-tier wage system undermines the solidarity of a unionized workforce, arguably the cornerstone of the organized labor philosophy.

“The two-tiered wage system is easy to get into and difficult to get out of. Essentially, it’s an embarrassment to unions,” Chaison said. “What happens is that current members vote for wage cuts of members who haven’t been hired yet. It goes against the concept of solidarity.”

Concessions on the Table

Experts said two-tier wages was a concession for both sides, and it’s expected to be a major talking point in 2015 because the union and the automakers understand such a system is not the “optimum plan,” Dziczek said.

In 2007, the auto industry and autoworkers both were feeling uncertain about the future. The agreement to include a two-tiered wage system was a form of concession bargaining by both the UAW and the automakers. The system allowed the manufacturers to retain jobs — with the prospect of hiring more workers — and existing autoworkers were able to avoid wage cuts.

“The concessions were more palatable to both parties than a wage cut or a freeze,” Chaison said. UAW members who worked at any one of the Detroit Three plants in 2007 did not see their wages cut or frozen. But those members ultimately voted to put their future co-workers at a disadvantage. “Auto jobs could have only been saved if wage cuts were passed on to future workers,” Chaison said.

Now, more than seven years later, those workers are not content to continue making a lower wage for doing equal work — especially in light of the recent successes of their employers.

Since the auto industry bailout in late 2008, the industry has rebounded. The government sold off all its shares of GM in 2013, and new car sales reached 16 million in 2014 for the first time since 2007, according to Edmunds.com. Ford enjoyed one of its best years ever in 2013, with a net income of $7.1 billion. GM reported $3.8 billion in net income for 2013, marking a fourth consecutive year of profits. Chrysler’s full-year net income was $2.8 billion, up from $1.7 billion in 2012.

“The industry has been talking so much about making a recovery. They’re finding out you cannot talk to the financial community about good times but still plead a case for bad times to the workforce. So I think there will be tremendous pressure for the reversal of the two-tier wage agreements,” Chaison said.

Entry-level workers on the bottom tier would like to see the gap between their wages and the upper tier closed. Similarly, after eight years, upper-tiered workers would also appreciate a raise, according to Dziczek, who added the older workers would also like their younger colleagues to see a pay raise.

“I think another thing that’s happened is that the older workers in the top tier feel really bad that these younger workers got a raw deal,” Dziczek said.

Experts also suggested that one reason why the UAW wants to eliminate the two-tier wage system is to show members and potential members the union is looking out for their financial interests. That tactic could prove useful in reversing the trend of declining union membership numbers.

The tiered wages are not expected to be completely eliminated with a new contract next year. Experts believe it will take more than one contract for that to happen. However, union experts believe next year’s contract negotiations will go smoothly with little chance of a long, debilitating strike.

“I don’t think there’s going to be a strike. If there is one, it’ll only be something like half a day long,” said Chaison, who added the union and the Detroit Three want to return to “the good old days” of labor relations.

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