Question

A. Sustainability of Approach. To the degree job growth (and increased car sales that come from more competitive labor costs) is based on two-tier wage structures, how sustainable is this approach? Consider, for example, that Fiat and Chrysler CEO Sergio Marchionne stated that “Long term, (the system) is not a viable structure. It creates two classes of workers within the plant. It doesn’t work in the same direction we are working . . . to get this organization to work in unison.” Why would Mr. Marchionne make this statement? What are the potential drawbacks of a two-tier structure? When would we expect any such drawbacks to materialize?

B. Use of Non-GM Workers. What about the use of non-GM workers at the Chevy Sonic plant? What might Mr. Marchionne think about that approach? How do you think the UAW and the workers it represents will react to Marchionne’s plan?

C. Summarizing the Pressures. Will the two-tier wage structure go away in the near future? Summarize the pressures to eliminate it as well as the pressures to keep it. Be sure to consider labor costs and productivity of workers and plants at other companies and in other parts of the world. You may wish to do some research on the new Volkswagen plant in Chattanooga, Tennessee. Also, consider that the Automotive News estimates that the Ford Fiesta (a competitor to the Chevy Sonic) plant in Cuautitlan, Mexico may have labor costs as low as $150 per vehicle.

Answer 1

A two-tier wage system is one in which a certain section of workers receive lower wages and benefits than the other. New employees receive low wages compared to senior employees in the company. Employers preferred this wage structure as it reduces the labor costs considerably. This approach has been practised for decades from the 1980s in automobile companies with the strong support of UAW and other labor unions in the United States. Mr Marchionne shows his dissent against the two-tier wage system pointing out some of its drawbacks. Mr Marchionne argues that the two-tier system creates a demoralized workforce. The major drawbacks of the two-tier system are discussed as follows. Two tier system causes a lack of motivation among employees earning lower wages for doing the same job as an experienced employee. The concept of fair wages and equal employment does not exist in the two-tier wage structure with preference shown to senior employees. The two-tier system creates a division of workers and forces employees with low wages to keep a distance from participating in company decisions. The collaboration of employees becomes a problem and a tendency to form groups among employees rise. This is detrimental to the growth of the company over a long term. This effect has materialized over the past decade and hence Mr Marchionne raises such statements to bring unison in the company.
GM has two tiers of workers, first tier earning $28 per hour and second tier earning $16 per hour. The issue of employing non-GM workers at Chevy plants reduces their wage structure and they have to lose their seniority. Mr Marchionne wants to eliminate the two-tier system and in his perspective, this wage reduction is a measure of bringing equality in the jobs. Detroit automobile manufacturers were the main force behind adopting a two-tier system in the workplace in the 2000s with the strong backing of UAW. They both entered into contracts and UAW agreed to the contract as it will create new jobs in the U.S. United Autoworkers Union (UAW) faced discontent among the workers leading to group formation and impeding the entire collective bargaining process. This made a fracture into the operation of UAW and lead to strikes due to the prevention of workers from receiving fair compensation. Hence UAW has now taken a strong stand to resist the two-tier system.
A research-based perspective reveals that about 25% of the union contracts included the two-tier wage system. The research concludes by stating that the two-tier system helps both unions and employers on an economic front. Employers can considerably reduce the labor cost by giving lower wages to new hires. Unions can benefit by increasing the number of new jobs in the industries enrolling more employees in the union. Hence the two-tier system lowers the wages of the employees in the entire automobile industry. To summarize, the two-tier system benefits companies with high employee turnover, a large number of retiring employees, cutting labor cost considerably, and with a high wage structure. Short term cost reduction, increased productivity and increasing profits are the main advantages of the two-tier system. These form the strong pressures to keep the two-tier system. The main drawbacks of the two-tier system include employee discontent, union conflicts, inequality, employee division, demoralized workforce and low level of employee commitment to achieving the company goals. These form the strong pressures to eliminate the two-tier system.