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Detroit Sets Future on Foundation of Two-Tier Wages

Bill Vlasic |The New York Times
Tuesday, 13 Sep 2011 | 5:36 AM ET

They are a cornerstone of Chrysler’s unlikely comeback: 900 employees turning out a Jeep Grand Cherokee sport utility vehicle every 48 seconds of the working day at an assembly plant here.

Car Manufacturing
Car Manufacturing

Nothing distinguishes them from other workers at the Jefferson North plant, except their paychecks. The newest workers earn about $14 an hour; longtime employees earn double that.

With the economy slumping and job creation once again a pressing issue in the White House and Congress, the advent of a two-tier wage system in Detroit is spiking employment for one of the country’s most important manufacturing industries. The new jobs, which are seen as long term, are being watched closely by economists, executives in other industries and Washington policy makers eager to increase employment in manufacturing and other areas.

For many, the opportunity for steady employment is welcome, even at a lower wage and with no certainty when it might increase.

“Everybody is appreciative of a job and glad to be working,” said Derrick Chatman, who makes $14.65 an hour putting tires on Jeeps after being laid off at Home Depot , working odd construction jobs and collecting unemployment.

What was once seen as a desperate move to prop up the struggling auto industry is now considered an integral part of its future. The demand for $14-an-hour manufacturing jobs is providing Detroit’s Big Three automakers with a ready pool of eager new employees. Last year, Chrysler was flooded with inquiries about the jobs here. It froze the list after receiving 10,000 applications.

The companies say the two-tier wages are paying off. Despite the disparity, there is no appreciable difference in the Grand Cherokees produced on the shift dominated since last fall by the lower-paid workers, the plant manager says. At General Motors , savings from its two-tier workers are crucial to production that began last month of an inexpensive, subcompact car in suburban Detroit.

Two-tier wage systems have been tried in the airline industry and others with spotty success. Usually the lower wages disappear rather quickly when the economy picks up. But the arrival of vastly different wage rates in auto factories is a seminal event in an industry long influenced by a powerful union devoted to equal pay regardless of seniority.

“This is not going away,” said Kristin Dziczek, a labor analyst at the Center for Automotive Research in Ann Arbor, Mich. “It has allowed the Big Three to reduce labor costs without cutting the pay of incumbent workers. Is it good for the health and competitiveness of the companies? Yes. And is that good for job security? Yes.”

Four years ago, the United Automobile Workers agreed to allow Chrysler, G.M. and Ford to pay lower wages to new hires to help close the cost gap with foreign carmakers. Now the two-tier arrangement is at the forefront of labor talks between the U.A.W. and the Detroit companies.

The union’s president, Bob King, has made an increase in entry-level wages a top priority in negotiations for a new national contract to replace the current agreement, which expires Wednesday.

So far, about 12 percent of Chrysler’s 23,000 union workers earn the lower wage, and over all, 4,000 or so of the 112,000 U.A.W. members are second-tier hires. Those numbers are expected to grow — and in fact can increase significantly even under the current contract. The jobs are central to the contract talks because they are viewed as critical to the industry’s continued recovery.

Some benefits for the lower-tier workers are scaled back as well. They get the union’s traditional medical benefits, but a maximum of four weeks paid time off a year, versus five for the longtime workers. And instead of the guaranteed $3,100-a-month pension a full-paid worker receives after age 60, the new hires have to build their own “personal retirement plan” based on contributions from the company of less than $2,000 a year.

The gap in wages between regular and entry-level workers has created dissent in U.A.W. ranks. Some long-term employees have demonstrated against the two-tier system and called for it to be abolished. Mr. King, however, has focused on getting meaningful pay raises for the lower tier rather than eliminating it.

At the big Labor Day parade in Detroit, union activists chanted “equal pay for equal work,” and some full-paid workers said they were willing to forgo a wage increase in the new contract to help the lower-tier employees.

“In order to get those guys up, we’ll take a signing bonus or profit-sharing instead,” said Gary Wurtz, a line worker at G.M.’s plant in Orion Township, Mich., where 40 percent of the employees are lower tier.

There were early problems with turnover among new hires who could not keep up with the pace of assembly-line work, according to Pat Walsh, the manager at Chrysler’s plant here. But the workers who stayed have performed well. “Our quality numbers have been very good,” Mr. Walsh said. “And our data doesn’t show any differences per shift or per workstation.”

Workers at Jefferson North said that the pay gap had not created visible tension. Rather, they say the older workers have encouraged the new hires to hang tough in hopes of achieving full-wage status down the road.

“They’re just telling us to hold out and that everything is going to get better,” Mr. Chatman said.

Mr. Chatman, who is 44 and single, said the security of the job is paramount to him. But he does not hide the fact that he expects one day to make as much money as his top-wage counterparts.

“I think they should get rid of the two tiers,” he said. “I hope it’s not here to stay. I hope it was just a steppingstone to get things back going again at Chrysler.”

There is no hard timetable for the lower-paid workers to move to full-wage status, but it could take years. As part of the government’s bailout of G.M. and Chrysler, the union agreed that no second-tier worker could move up until 2015 at the earliest. At Ford, which did not receive federal aid, the current contract lets the company fill 20 percent of its union jobs with lower-paid workers before it moves any into the top tier.

Experts on two-tier arrangements say that advancement opportunities are critical to the system’s success. “If you know you’re going to get to the top wage eventually, the system can work,” said Peter Cappelli, a professor at the Wharton School at the University of Pennsylvania. “The big problem is when you think you’ll never get there.”

For now, employees like Mr. Chatman are exhilarated by their steady paychecks and the emotional reward of being part of Chrysler’s turnaround. Mr. Chatman was recently promoted to be a team leader in the plant, facilitating the efforts of 10 other employees, including two full-wage workers (no additional pay).

He can’t help smiling every time he sees each shiny new Grand Cherokee, one of Chrysler’s top-selling models, roll off the line. Still, it’s tough to accept that his entire annual salary of about $30,000 is not enough to afford the least expensive Jeep made at Jefferson North.

“It would be a shame to work at Chrysler,” he said, “and not be able to drive a Chrysler.”

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