Two-Tiered Pay Scale for Autoworkers Raises Debate

In most of his 32-year career as a Michigan autoworker and union leader, Frank Hammer never imagined the United Auto Workers agreeing to major concessions when it came to core principles: equal pay for equal work, job security and generous pensions.

But an erosion of those key values has arrived and at a rapid pace over the past several years: Enter a two-tiered salary system. Beginning in 2007, the UAW has drafted contracts with the Detroit Three automakers aimed at rebuilding a struggling American auto industry and preventing thousands of American jobs from moving overseas. One of the key changes in the contracts allowed for a two-tiered salary system, letting entry-level workers earn far less than traditional workers while also forgoing pensions and more generous health plans.

As a result, roughly 13 percent of General Motors Co., Ford Motor Co. and Chrysler Group hourly workers, or about 15,000 employees, are now in those lower-paid positions, shows a recent study from the Center for Automotive Research in Ann Arbor, Michigan.

Before the UAW agreed to the new salary structure, the average worker cost GM about $79 per hour in wages and benefits. Today, that figure is down to $58, largely because of the growing number of entry-level positions coming into the system, says Kristin Dziczek, a director at the Center for Automotive Research. Typical entry -level workers earn about $19 per hour, with workers in warehousing and distribution positions making less than $15 per hour, she says.

The new salary structure has taken a toll on all autoworkers, undermining the ability of workers to live a decent wage and quality of life, says Hammer, who retired in 2006 and is now a leader of The Autoworker Caravan, a Michigan-based advocacy group formed in 2008 for unionized autoworkers.

“The morale of workers in the plants is not at all what it used to be,” Hammer says. “You face situations where a mother and son can be working on two different sides of the assembly line doing the same job, but one is working at half the wage of the other.”

But Dziczek says many new autoworkers are happy to take the jobs, even at drastically lower salaries, because the depressed job market offers them few other opportunities.

“Traditional workers really feel these [new] people have gotten a raw deal,” she says, “but entry-level workers are looking at it differently, figuring, ‘If I stick around long enough, I’ll get the wage you got.’ They understand the bargain.”

GM spokesman Bill Grotz says the contract negotiated in 2007 has resulted in about 9 percent of the automaker’s current workforce being entry level, and it’s working well. “Overall, it was a pretty innovative labor agreement. … It helped us stay competitive, open more plants and provide more opportunities for more jobs,” he says.

Art Schwartz was GM’s general director of labor relations from 1985 through 2009. Now a retired consultant, he says the criticism of entry-level positions is misplaced, given that the jobs are still very attractive to job seekers. Furthermore, the industry—faced with globalization—had few other options for survival.

“These are still good jobs. They still pay benefits,” Schwartz says. “The health care is extremely good. … We’re talking about an industry that’s competing very hard in a global marketplace, where they tend to have a labor-cost advantage. This is one way of trying to overcome it without damaging anybody who’s already there.”

Some analysts say the union’s concessions may have a lasting effect, not just for the auto industry but for the power and integrity of unions across many fields.

Dziczek says the new salary structure would have been unheard of only a few years before, but the union and automakers had to take dramatic action to save U.S. jobs.

“They all had to do something because labor costs were so out of whack with other competitors in this market,” Dziczek says. The union “knew that a total wage concession was unlikely to ratify so this was one way of getting labor costs down without taking money out of the pockets of the people who were voting on the agreement.”

Dzicek’s recent analysis projects a steady climb in entry-level positions over the next several years. She predicts that by 2015, 35 percent of Chrysler’s workforce will be entry level, with GM at about 23 percent and Ford at 15 percent.

In the meantime, Hammer expects opposition from autoworkers to continue, as the pay disparities become more obvious over time.

“I think there’s certainly sentiments out there that people are just glad that they’re working,” Hammer says. “But it’s becoming extremely more difficult to sustain a normal quality of life with these jobs.”

Meg McSherry Breslin is a writer based in the Chicago area. Comment below or email editors@workforce.com.