Two-Tier Salaries: Analyzing Economic Sustainability and Social Impact

This report examines the two-tier wage system implemented in the US auto industry following the 2007/2008 financial crisis. It analyzes the economic and social implications of this system, focusing on its impact on job creation, wage disparity, and long-term sustainability. The report discusses the views of various stakeholders, including the UAW and auto manufacturers, and explores the potential for resentment and class divisions among workers. It considers the short-term benefits of the system, such as cost reduction and job growth, while also addressing the long-term challenges related to worker morale, union negotiations, and the evolution of wage structures. The report concludes that while the two-tier system may have provided short-term benefits, its long-term sustainability is questionable, and an evolution towards a more equitable system is needed.

RUNNING HEAD: PROJECT MANAGEMENT: TWO TIER SALARIES1
Project management: Two Tier Salaries
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1. After the heady days of the US and global financial meltdown of 2007/2008; the UAW
allowed some manufacturers to introduce two-tier wages with the aim of lowering production
costs and to spur growth in the depressed automotive sector . Apart from helping save the auto
makers, the system has helped spur a growth in jobs in the industry, with hitherto closed factories
being opened and creating job opportunities for the unemployed, even if the entry wages are
nearly half that of tier 2 employees (Lee, 2011). The two-tier systems has helped create jobs and
spur the growth of jobs in the US Auto industry
2. Inevitably, the two-tier wage system raises concerns due to the wide wage disparity
between new and established workers; this is more of a social issue than an economic one.
Viewed through the prism of economics, the two-tier wage system is sustainable, especially in
the short to medium term; this is because it makes sense to have more people productively
employed, gaining crucial skills while helping automotive workers balance their books and
regain profitability that can guarantee even the entry level workers earning less a job and stable
income in the future. In the short and medium term, the system has been very successful
(Wernle, 2014). In the longer term, however, it will not be sustainable, especially from a social
angel because as the FIAT CEO has argued, it is likely to create resentment and two classes of
workers within the same factory. Talking of its sustainability, the answer is yes and no; yes
because from a purely economic angle, it will be acceptable for unemployed people to accept
jobs at a lower wage rate than remain unemployed. Some of the drawbacks to two tier wage
systems is obvious resentment from those paid less and problems with unions of equal pay for
equal work
It will also help the auto makers lower costs and gain profitability, and this will lead to
expansion and opening of new plants that will increase employment. Meanwhile, the entry level
employees will eventually move to the established employees rank and earn more wages.
Elsewhere, it has been successful, tied to the seniority system that has long been a tradition in
Japanese companies (White, 2018). The concerns of the FIAT CEO are justified by social
factors, where eventually, there will be resentment and ‘class issues’ based on wages that can
adversely impact productivity and cooperation among staff: this is why Marchionne thinks it will
create two classes of workers. Some drawbacks of the system is that it will be complicated in the
long term when auto makers become profitable and have to negotiate wages with the UAW.

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These are legitimate concerns; experienced workers in the lower wage bracket are likely to seek
greener pastures, disrupting their current employers, so in the long term, the system as presently
implemented is NOT sustainable: what is required is its evolution to something better
3. Using non GM workers may be economically sound but social unsustainable; based on
the Hierarchy of needs and sociological functioning, employees seek loyalty from employers and
vice versa. While it may work in the short term, it is unsustainable in the medium to long term:
this would be Marchionne’s thoughts about the approach, it still will create resentment as well.
4. The two-tier system will go away in the near future, with the most likely scenario is for
it to evolve, say to be used for interns rather than full time employees. Union pressure, and
worker demands for equal pay for equal work will eventually see its disbandment, or at the very
least, its evolution (Chen, 2011)

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References
Chen, L. (2011). Two-Tier Wages Are Likely to Evolve - NYTimes.com. [online] Nytimes.com.
Available at: https://www.nytimes.com/roomfordebate/2011/09/18/can-detroit-sustain-
its-two-tier-pay/two-tier-wages-are-likely-to-evolve [Accessed 23 Feb. 2018].
Lee, D. (2011). Two-tier pay system brings reopening of GM plant, reviving hope. [online] LA
Times. Available at: http://articles.latimes.com/2011/dec/18/business/la-fi-economy-
wages-20111218 [Accessed 23 Feb. 2018].
Wernle, B. (2014). Why mess with 2-tier wage success?. [online] Automotive News. Available
at: http://www.autonews.com/article/20140526/OEM02/305269987/why-mess-with-2-
tier-wage-success%3F [Accessed 23 Feb. 2018].
White, S. (2018). Japanese companies running out of excuses not to raise wages. [online] Japan
Today. Available at: https://japantoday.com/category/business/Japanese-companies-
running-out-of-excuses-not-to-raise-wages [Accessed 23 Feb. 2018].