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Two-tier wages: should workers accept lower wages if it means more jobs?

Chrysler Group and Fiat SpA CEO Sergio Marchionne with Ron Bloom.
Chrysler Group and Fiat SpA CEO Sergio Marchionne with Ron Bloom.
Bill Pugliano/Getty Images

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If it meant going from unemployed to employed, would you be willing to do the same work as those around you but get paid less? Many auto workers in Detroit have said yes; specifically, at a Chrysler plant in Detroit, new auto workers make $14 an hour, as compared to the longtime employees who earn twice as much.

With unemployment persisting and US auto companies trying to remain competitive, this two-tier wage system has been a solution since the United Automobile Workers (U.A.W.) allowed Chrysler, G.M. and Ford to hire new employees with lower wages four years ago. This two-tier wage system has been tried in the airline industry and others with less than successful results, but it’s particularly watched in the auto industry, an industry known for its powerful union advocating equal, livable pay. In addition to lower wages, second-tier workers get only four weeks paid time off a year rather than five; and instead of a $3,100-a-month pension, they have to build their own pension plan with less than $2,000 a year from the company. Roughly 12 percent of Chrysler’s employees are in this second tier; about 3.6% of all U.A.W. members earn the lower wage and benefits—and the numbers are expected to rise. Is this two-tier system beneficial all-around, to both workers and U.S. auto companies? Or is it detrimental to the economy to lower peoples’ expectations of a high-paying job? How will this affect the middle class? And will a two-tier wage system be applied to other industries?


Kristin Dziczek, director, Program for Automotive Labor and Education at the Center for Automotive Research (CAR)

David Lewin, Professor of Management at the UCLA Anderson School of Management