Two Tier Wage System Case Study

Chapter 7

Are 2-tier wage systems fair and justified?” Provide supporting data to justify your response.
The two tier wage system is usually established by management and sometimes in agreement with a union for three main reasons. The first reason being that the employer wants to pay senior, experienced and productive worker more without increasing overall wage cost. The second reason for the implementation of this system is so that the employer can establish a merit wage scheme that compensates employees without increasing overall costs. The last reason could be that the employer wants to reduce overall cost by hiring new employees at a lower wage than incumbent workers. Unions usually agree to this type of wage system as a tactic that would allow employer to hire future employees at lower wages than senior
workers, so as to reduce cost to employers and prevent future layoffs and wage cuts. Unions realize that preserving the jobs, wages and benefits of active union members is first priority.
The two tier wage system may be considered fair and justified as in the recession of recent times.
This system can be implemented as a strategy to resist the need to lay off workers, and reduce the wages of current workers. Unless there is a recession, the two-tier system is unfair and unjust. During non-recession economic times, employers, especially those in the private sector, may use this system as a way of minimizing cost and maximizing profits, which is unfair to workers. Each worker should be viewed as equal and should be rewarded equally. The two-tier wage system may be viewed as discriminatory, and denies employees the opportunity to thrive and get ahead. Employees who perform the same work should be paid the same the amount. This is the main reason for the labor movement and the reason why people join union. Employees who are being paid more will be constantly in fear of losing their job and be in fear of being replaced by lower-tier employees which will therefore reduce overall morale. Employees who are paid less to do the same work will be in conflict with those who are paid more and this may lead to lower productivity from these
workers.
In the case that there is a recession it would be beneficial to current employees to agree to a two-tier wage system, so as to preserve their jobs and benefits. The seasoned employee would not have to worry about being paid at the lower level as only new employees are affected. The system should be reversible and should be reversed, once the employer has become profitable again. It would be unfair to keep this system around if the company can afford to revert to the previous system. The United Auto Workers and GM, Ford and Chrysler in 2007, agreed to a two tier wage system, with new employees being paid the lower tier. The CEO of Ford believed that this change in the wage system was necessary to retain jobs. In 2010 under the new wage system Ford hired 1,200 new employees, rather than laying-off workers and closing plants. Two tier wages system can be as strategy for maintaining job security and benefits for current workers during difficult times but should be reversible once the company is again profitable.