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Two-Tier Wages

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Two-Tier Wages

Andrea Conklin

Baker College, HRM 300, Dr. Nicole Runyon

March 9, 2014

Our economy had a downturn in 2007-2011 and the automotive industry was hard hit. GM and Chrysler filed for bankruptcy due to increasing labor costs and decreased demand in automobile from consumers. Therefore, U.S. automakers turned to two-tier wage structures to control labor costs over the next several years. GM started using a two-tier wage structure in late 2007. Any new hires after September 2007 received an hourly Tier II wage of $14, about one half the hourly of the $28 hourly wage of Tier I existing employees (Milkovich, Newman, Gerhart, 2014, p.242).

In the U.S. in the late 1990’s had over one million people employed in the automotive industry, the number dropped to 550,000 during the recession. The Center for Automotive Research projected that in 2012 the numbers could increase to 650,000 and in 2015 it could be more than 750,000 employees (Milkovich, Newman, Gerhart, 2014, p.242). Two-tier wages systems has helped the automotive industry recover because the reduced hourly wages for new hires helped decreased labor costs to compete with labor costs internationally. With the downturn in the economy there were many people that were unemployed and having these two-tier wage systems allowed the automotive companies to hire in eager and willing employees for the $14 an hour wage, compared to these applicants receiving unemployment or minimum wage positions. The lower hourly wages helped the automakers control their labor costs, improve their business strategy, and start repaying the government they loans they gave to keep the companies alive.

“‘This (two-tier wages) are not going away,’ said Kristin Dziczek, a labor analyst at the Center for Automotive Research in Ann Arbor, Mich. ‘It has allowed the…...

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