Two-tier Wages

American automotive corporations utilize two-tier wage system to lower its production expenses and increase the efficiency of production. However, many unions oppose such wage distribution system based on the argument that it is ineffective and increases the level of workers’ social and economic insecurity at work.

The use of two-tier wages in the automotive industry has made it possible to create new jobs for thousands of people. Many entry-level workers would be unemployed if two-tier wage system was not introduced. Therefore, two-tier wage system gives automotive plants the opportunity to shift the production facilities to the United States from overseas, which positively affects the job creation in the USA. In fact, big automotive corporations can afford to establish more workplaces utilizing the two-tier wage system. Allocating fewer expenses on wages leads to the increase in production. Thus, automotive manufacturers need more workers, which results in opening of new positions. The increase in employment and two-tier wage system are interrelated. Despite the benefits, there are many challenges that automotive corporations face when they introduce two-tier wage system.

 

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Chrysler CEO Sergio Marchionne pointed out that two-tier wage system is not effective and sufficiently viable, and it would be complicated to integrate it into the company’s future production and business projects. Mr. Marchionne also emphasized that two-wage system creates two classes of workers at their plants (Walsh, 2011). Therefore, such wage distribution differentiates the company’s employees and causes disparity among workers. In fact, employees, who do the same type of work for lower salaries, are likely to protest eventually. It can result in high turnover, which affects productivity and requires additional expenses for training of new employees. Mr. Marchionne made such statement based on his expertise, as he fully understands the risks associated with two-tier wage system.

Moreover, automotive manufacturers may acquire additional savings if there is a higher level of turnover among employees. The claim is based on the assumption that automotive companies substitute more experienced tier 1 workers with inexperienced newcomers, which saves certain amount of money on the price difference in wages. However, such course of actions is not beneficial, since in the end an employer would need to cut down wages for all employees (Bunkley, 2014). Moreover, high turnover decreases the production capacity.

The case of the GM plant in Orion Township, Michigan proves that outsource of employees can greatly save the costs needed for production of one vehicle. The workers sort out details for building Chevrolet Sonic for $20 per hour, which is a lower wage than tier 2 GM employees are paid. GM saves $450 per vehicle using outsourcing approach. Mr. Marchionne does not have a clear vision of how Chrysler is going to eliminate two-tier wage system in 2015, but the company is determined to reach the fair wage objective eventually. Considering GM experience with outside supplier employees, Mr. Marchionne may find such decision effective, since Chrysler is striving to eliminate two-tier payment system. As a substitute for two-tier wages Chrysler may involve outside suppliers in the production to significantly decrease the expenses. To conclude, I think that two-tier wage system will not be eliminated in the near future. The removal of such payment system would impose extra expenses on the automotive corporations, and some companies are not prepared to undertake the financial difficulties. In addition to aforementioned disadvantages, the case when employees at automotive plants retire or leave, the wage level for new workers is likely to decrease. Moreover, there is no guarantee that the future salaries will rise or working conditions will be improved. It is one more factor against two-tier wage system.

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An example of effective substitution of two-tier wages with outside supplier is evident in Volkswagen AG case. The company opened a plant near Chattanooga, Tennessee to lower its production expenses and stay competitive with Chevrolet and Honda. Worker’s average hourly wage and benefit is $27 at the auto assembly plant in Chattanooga; it is lower compared to competitors. Such decision allowed Volkswagen Group to start production of new sedan model priced $20000, which is approximately the same price as its counterparts built by Chevrolet and Honda (Ramsey, 2011).