The Two-Tier Wage Format
The Two-Tier Wage Format How to Turn Workers Against Each Other (and Make Them All Poorer) By DAVID MACARAY People are stunned and confused when they learn that big-time unions such as the United Auto Workers (UAW) have agreed to contracts that contain two-tier wage provisions. It was organized labor (and not the Church or the U.S. Congress or philanthropic organizations) who first demanded equal pay and equal seniority for women. Equal pay for equal work was one of labor's fundamental tenets. So, to the casual observer, the notion of a union agreeing to something so unjust is inconceivable. For those unfamiliar with the concept, a two-tier format requires new employees to earn less money than their senior co-workers. Even when doing identical jobs, even when working side by side. Because these tiered plans generally have no "sunset language" (built-in expiration dates), no amnesty periods, no mechanisms for equalizing pay, the rate discrepancies remain permanent. Through natural attrition a company can eventually end up with its entire workforce earning substantially lower wages. Worse, the two-tier format doesn't apply exclusively to wages; it can cut into the entire economic package, including benefits. Newbies are commonly locked into lower vacation time, higher medical premiums and smaller pensions. That's why the tiered format is so tempting to businesses. While the configuration has been around in one form or another for decades, it wasn't until the 1990s that it became a routine agenda item, and it wasn't until fairly recently that companies began treating it as a "deal-breaker." Arguably, the genie was let out of the bottle when companies first began adopting hiring rates (where new-hires aren't paid the full rate until they've been there a year), and when lump-sum bonuses were accepted in lieu of GWIs (General Wage Increases). To a company looking to cut costs, paying cash instead of a GWI is a sophisticated short cut to achieving it. Because overtime is computed at the (old) hourly rate, as are vacation and holiday pay, sick leave, workers comp claims, and pension formulas, the overall savings to a company can be considerable. But even with these precursors in play, how was organized labor ever persuaded to accept a provision so toxic and self-destructive as this? Typically, management comes at the union from two angles, one economic, one cultural. The economic approach bluntly warns that without the adoption of a two-tier format, cost savings will be sought elsewhere. In this context, "elsewhere" is understood to mean benefits and wages, two components of the membership's Holy Trinity (the third is seniority). And the benefit considered most vulnerable is health care. Since the early 1990s, the threat of unleashing the hounds of medical insurance has been management's most effective scare tactic. Because everyone who follows the news knows that medical costs are out of control and spiraling upward, the fear of a family budget being wiped out by exorbitant premiums and deductibles looms large. The company begins by bombarding the union with reams of grim statistics: comparisons to other facilities, other industries, other unions, other states, other countries, other eras. In a normal contract negotiation, while economics (particularly wages) are always foremost and omnipresent, they manage somehow to stay muted and unobtrusive, like background music, until crunch time. But in a two-tier wage pitch the demands are unrelenting and merciless, right from the get-go. The company recites the names of businesses that have already moved to Mississippi or Malaysia, or have shut down altogether because they couldn't compete. They mention the hundreds of thousands of layoffs in the sector; they compare GM's national strike in 1970, where over 400,000 workers walked off their jobs to GM's recent strike, where 73,000 walked out; they note that during their last hiring period, nearly 2,000 people showed up to apply for 44 hourly positions; and they mention that virtually no one in the facility ever quits to seek employment elsewhere, because they're all so well-paid. It's an assault, an avalanche of bad news. The union is told, analogously, that it can choose to swallow a bitter pill (and maybe choke on it a bit) or it can choose to undergo major surgery. The choice is yours. Do you want your medical plan to remain intact, or do you want your premiums to skyrocket? By giving the company the relief it seeks in the area of future wages, you can hang on to what you have. The choice is yours. That's the economic argument. The cultural argument is subtler and more tantalizing. Not only is the union reminded that the plan won't adversely affect anyone currently on the payroll, these future new-hires, these people who are going to be making less money than the rest of them, are portrayed as being vaguely culpable, as if their Johnny-come-lately status makes them somehow deserving of being punished. Current employees-those who've faithfully put in their years and showed their loyalty to both union and company-will continue to be rewarded for that service. Besides being grandfathered in, and having their precious medical insurance untouched, the company will offer them a hefty "signing bonus" for ratifying the contract. Because this enterprise can be seen as class warfare-once-removed (a case of the working class arranging things so as to form its own sub-class), management reassures the union that the only people who can be "hurt" by this are people who do not yet exist. They are "hypothetical" workers, part of that sea of nameless, faceless job applicants who may one day seek employment in the facility. Moreover, when these folks move from hypothetical to "actual," they are going to know exactly what's in store for them. The two-tier format will be carefully explained. If the prospect of earning as much as $16 per hour on the bottom tier (as opposed to $30 per hour on the top tier) makes economic sense to them, they'll be welcomed aboard. But if the deal offends them (if the notion of equal work being rewarded with unequal pay is something they simply can't abide), they'll be congratulated for having a well-developed sense of justice, and cautioned not to let the door hit them on the way out. And that, more or less, is how the two-tier plan is pitched. Of course, once these plans are implemented, they're an ungodly mess. The membership experiences an agonizing case of "buyer's remorse." The same members who assumed they could work comfortably with sacrificial lambs now feel pangs of conscience. They blame the company; they blame themselves; they blame the union for bringing it to a vote. And then there's that whole dynamic of the haves bickering with the have-nots; morale plummets, and union solidarity goes out the window. But as bad as it gets, it's nothing compared to later. The really bad news doesn't come until the next negotiation, after the two-tier format is firmly in place. That's when the company announces that, unfortunately, medical insurance, the one benefit that was to be left untouched, must now be drastically slashed. And when the union screams bloody murder, they're told it's business. Just business.
The Two-Tier Wage Format How to Turn Workers Against Each Other (and Make Them All Poorer) By DAVID MACARAY People are stunned and confused when they learn that big-time unions such as the United Auto Workers (UAW) have agreed to contracts that contain two-tier wage provisions. It was organized labor (and not the Church or the U.S. Congress or philanthropic organizations) who first demanded equal pay and equal seniority for women. Equal pay for equal work was one of labor's fundamental tenets. So, to the casual observer, the notion of a union agreeing to something so unjust is inconceivable. For those unfamiliar with the concept, a two-tier format requires new employees to earn less money than their senior co-workers. Even when doing identical jobs, even when working side by side. Because these tiered plans generally have no "sunset language" (built-in expiration dates), no amnesty periods, no mechanisms for equalizing pay, the rate discrepancies remain permanent. Through natural attrition a company can eventually end up with its entire workforce earning substantially lower wages. Worse, the two-tier format doesn't apply exclusively to wages; it can cut into the entire economic package, including benefits. Newbies are commonly locked into lower vacation time, higher medical premiums and smaller pensions. That's why the tiered format is so tempting to businesses. While the configuration has been around in one form or another for decades, it wasn't until the 1990s that it became a routine agenda item, and it wasn't until fairly recently that companies began treating it as a "deal-breaker." Arguably, the genie was let out of the bottle when companies first began adopting hiring rates (where new-hires aren't paid the full rate until they've been there a year), and when lump-sum bonuses were accepted in lieu of GWIs (General Wage Increases). To a company looking to cut costs, paying cash instead of a GWI is a sophisticated short cut to achieving it. Because overtime is computed at the (old) hourly rate, as are vacation and holiday pay, sick leave, workers comp claims, and pension formulas, the overall savings to a company can be considerable. But even with these precursors in play, how was organized labor ever persuaded to accept a provision so toxic and self-destructive as this? Typically, management comes at the union from two angles, one economic, one cultural. The economic approach bluntly warns that without the adoption of a two-tier format, cost savings will be sought elsewhere. In this context, "elsewhere" is understood to mean benefits and wages, two components of the membership's Holy Trinity (the third is seniority). And the benefit considered most vulnerable is health care. Since the early 1990s, the threat of unleashing the hounds of medical insurance has been management's most effective scare tactic. Because everyone who follows the news knows that medical costs are out of control and spiraling upward, the fear of a family budget being wiped out by exorbitant premiums and deductibles looms large. The company begins by bombarding the union with reams of grim statistics: comparisons to other facilities, other industries, other unions, other states, other countries, other eras. In a normal contract negotiation, while economics (particularly wages) are always foremost and omnipresent, they manage somehow to stay muted and unobtrusive, like background music, until crunch time. But in a two-tier wage pitch the demands are unrelenting and merciless, right from the get-go. The company recites the names of businesses that have already moved to Mississippi or Malaysia, or have shut down altogether because they couldn't compete. They mention the hundreds of thousands of layoffs in the sector; they compare GM's national strike in 1970, where over 400,000 workers walked off their jobs to GM's recent strike, where 73,000 walked out; they note that during their last hiring period, nearly 2,000 people showed up to apply for 44 hourly positions; and they mention that virtually no one in the facility ever quits to seek employment elsewhere, because they're all so well-paid. It's an assault, an avalanche of bad news. The union is told, analogously, that it can choose to swallow a bitter pill (and maybe choke on it a bit) or it can choose to undergo major surgery. The choice is yours. Do you want your medical plan to remain intact, or do you want your premiums to skyrocket? By giving the company the relief it seeks in the area of future wages, you can hang on to what you have. The choice is yours. That's the economic argument. The cultural argument is subtler and more tantalizing. Not only is the union reminded that the plan won't adversely affect anyone currently on the payroll, these future new-hires, these people who are going to be making less money than the rest of them, are portrayed as being vaguely culpable, as if their Johnny-come-lately status makes them somehow deserving of being punished. Current employees-those who've faithfully put in their years and showed their loyalty to both union and company-will continue to be rewarded for that service. Besides being grandfathered in, and having their precious medical insurance untouched, the company will offer them a hefty "signing bonus" for ratifying the contract. Because this enterprise can be seen as class warfare-once-removed (a case of the working class arranging things so as to form its own sub-class), management reassures the union that the only people who can be "hurt" by this are people who do not yet exist. They are "hypothetical" workers, part of that sea of nameless, faceless job applicants who may one day seek employment in the facility. Moreover, when these folks move from hypothetical to "actual," they are going to know exactly what's in store for them. The two-tier format will be carefully explained. If the prospect of earning as much as $16 per hour on the bottom tier (as opposed to $30 per hour on the top tier) makes economic sense to them, they'll be welcomed aboard. But if the deal offends them (if the notion of equal work being rewarded with unequal pay is something they simply can't abide), they'll be congratulated for having a well-developed sense of justice, and cautioned not to let the door hit them on the way out. And that, more or less, is how the two-tier plan is pitched. Of course, once these plans are implemented, they're an ungodly mess. The membership experiences an agonizing case of "buyer's remorse." The same members who assumed they could work comfortably with sacrificial lambs now feel pangs of conscience. They blame the company; they blame themselves; they blame the union for bringing it to a vote. And then there's that whole dynamic of the haves bickering with the have-nots; morale plummets, and union solidarity goes out the window. But as bad as it gets, it's nothing compared to later. The really bad news doesn't come until the next negotiation, after the two-tier format is firmly in place. That's when the company announces that, unfortunately, medical insurance, the one benefit that was to be left untouched, must now be drastically slashed. And when the union screams bloody murder, they're told it's business. Just business.