Answer the following question after reading over the case study below.

Case 10 Two-Tier WagesSame Job, Different Pay

When domestic auto manufacturers were hit hard by recession and foreign competition, they struggled to control costs and maintain profitability. One response was a two-tier wage system paying new workers significantly less than existing ones doing the same job. What is the future for two-tier wage systems?

A New Labor Contract

At Ford, General Motors, and Chrysler manufacturing plants across the United States, newly hired workers are earning an hourly wage that may be half that of their more experienced coworkers who perform identical tasks, averaging roughly $19 versus $28 per hour. Their benefitshealth insurance, paid time off, and retirement fundingare also less than those of experienced workers. These differences are the result of two-tier contracts where labor unions permit corporations to hire new workers with wage and benefit packages below those earned by veteran employees in the same jobs.

Here to Stay?

This is not going away, said Kristin Dziczek, a labor analyst at Ann Arbors Center for Automotive Research. It has allowed the Big Three to reduce labor costs without cutting the pay of workers. Is it good for the health and competitiveness of the companies? Yes. And is that good for job security? Yes. If you know youre going to get to the top wage eventually, the [two-tier] system can work, says Peter Cappelli, a professor at the University of Pennsylvanias Wharton School. The big problem is when you think youll never get there. Although lower-tier workers can move up, theres a lot of uncertainty about how long it takes. The United Auto Workers (UAW) union wants to shorten and clarify the time to jump tiers and close the pay gap between them.

Mixed Reactions

Labors reaction to the two-tier wages has been mixed. Although no one is happy about earning 50% less than the worker across the aisle, Everybody is appreciative of a job and glad to be working, said Derrick Chatman, a new hire at Chryslers Jefferson North plant. Before joining Chrysler for $14.65 per hour, he was laid off from Home Depot, worked the odd construction job, and collected unemployment. Gary Wurtz, a line worker at GMs Orion Township, MI, plant, where 40% of his fellow workers receive lower-tier wages, said: In order to get those guys up, well take a signing bonus or profit-sharing instead. That said, two-tier plans still have the potential to divide workers across salary lines. Gary Chaison, a professor of industrial relations at Clark University, points out, [Lower-tier workers] might even feel sufficiently aggrieved to someday negotiate away the benefits of retired higher-tier workers. A higher-tier autoworker observed, After we retire, the next generation may ask, Why should we defend your pensions? You didnt defend our pay when we were young.

Bridging the Gap

For many union members, the rallying cry is No more tiers! They want to eliminate the two tiers and move to a higher uniform wage rate for all. The new UAW president Dennis Williams says, Its time to bridge the gap. But Chrysler CEO Sergio Marchione takes a very different position. He would prefer to eliminate the higher wage tier altogether as senior workers retire.

A Changing Tide

Although at first the two-tier contracts looked to be here to stay, it appears that among the Big Three automakersFord, General Motors, and Chryslerthere may be a changing tide. Ford was loudest in support of the two-tier system. And while recognizing that dropping the system will increase labor costs, Ford acknowledges that there have been benefits to eliminating the system. Said Joe Hinrichs, Fords president of the Americas, One of the great things coming out of the new contract has been that we no longer talk about the differences between an entry-level worker and a legacy worker. All the workers are the same. So, although Ford is paying more in wages, it also expects to generate performance benefits by eliminating the system. As Hinrichs said, Thats really good, because one of the things you really need in a manufacturing plant is there to be focus and discipline. Anxiety or distraction is the enemy of process discipline. Both Chrysler and General Motors have also made tentative agreements with the UAW to narrow pay gaps across the two tiers.

Case Analysis Question

1. FURTHER RESEARCH: (You need to lookup data on reports to support your answer to the question below. Please cite where you get your sources from whether online or books.)

Create a report that summarizes the current status of two-tier plans, what we know about how they work, and what direction we can expect from them in the future. Find the pros and cons of both management and union points of view. Research online and in books for current events and analyst reports on two-tier wage systems and their outcomes in various industries. Look up interviews with workers who express their real feelings about being on each side of the two-tier system.