Two-tier wages a double-edged sword

Resentments grow the longer differentials remain

A news story from the U.S. recently said that the employees at Harley-Davidson had turned down a tentative agreement on February 1 because, among other things, it included a second-tier wage scale for employees hired after ratification. The agreement finally accepted after a three-week strike didn’t include it. The union was the International Association of Machinists. At the same time, the United Auto Workers was rejecting the most recent offer from Delphi but it had accepted a two-tier wage plan to save the auto parts maker.
Recently, Wayne Fraser, director of District 6 of the United Steelworkers, had the following to say about two-tier wages: “We have fought and won the push by employers who were demanding concessions and the introduction of two-tier wages, benefits and pensions. [They] undermine the values of the union, which include equal pay (and benefits) for equal work. These two-tier systems pit workers against each other and against their union. It significantly reduces the power of the union both at the bargaining table and in the workplace.”
The attraction of two-tier structures is that they allow the company to institute a long-term reduction in wages and benefits without forcing the current employees to agree to it as well.
Most commonly, new hires will be placed on a different wage scale with a lower top rate. (Autoliv Electronics, Canada Bread Etobicoke) Occasionally, they will also have longer waits for vacation increases or a different benefit plan. (Lilydale Poultry Abbotsford) A defined-contribution pension plan for new employees while existing ones keep their defined-benefit plan is also common. Finally, the company may even offer buy-downs where employees volunteer to drop to the lower scale for a lump sum. (Union Gas in 2001, Loblaws in 2006)
Industries in crisis often try to restructure their wage scales to reduce costs. The meatpacking industry in the 1990s and the airline industry more recently have both done this. The Fletcher’s Fine Foods agreement in Vancouver in May of 2006 was heralded by the United Food and Commercial Workers as the beginning of the end for two-tier wages in food processing.
For all the problems they may solve at a minimum of disruption for an industry whose wages are no longer competitive, two-tier wage structures have a downside and it’s the one Fraser identifies: people doing the same job side by side will be paid significantly different wages. If the turnover of employees is higher or if there is a buy-out, the resentment resulting from this may be smaller and short-lived. If workers doing the same job and going to the same union meeting are going to be paid at different rates perpetually, the sense of injustice felt by those on the second tier may result in lower productivity, friction and lack of commitment. (A working paper by Christopher Stoney of the School of Public Administration at Carleton University entitled “ ‘A Breach Too Far?’ Flexible Pay Structures and Psychological Contracts” describes the problems well.)

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