How Two-Tier Union Contracts Became Labor's Undoing
The two-tier system, in sum, has come a long way from its initial conception as temporary relief for companies facing hard times. In that early version, unions and managers agreed not only to sunset provisions, but also to limit the percentage of new hires who could be consigned to the lower wage rate. From that cautious start, the bottom tier evolved and spread, eventually becoming a permanent rollback in wages or benefits (or both), not just at endangered companies but at profitable ones as well. “If you just instruct unions not to negotiate such a contract, that is no longer a solution,” Thea Lee, the AFL-CIO’s deputy chief of staff, told me. “They are backed into a corner.”
The government avoids the subject of two-tier labor agreements in its data gathering. And the Bureau of National Affairs, a private organization (recently renamed Bloomberg BNA) with 1,900 labor contracts signed in 2010 and ‘11 in its database, does not single out every one with a two-tier arrangement. “I’m willing to bet,” says Robert Combs, BNA’s manager of custom research, “that there were many, many contracts ratified in those years that specify two-tiered wage structures.”
The tiers vary, although no one formally tracks the variations. But interviews with workers, union officials and managers, particularly in manufacturing, suggest that the lower tier in many contracts is $12 to $20 an hour, versus $20 to $33 an hour for the upper tier. New hires top out over several years at roughly the starting wage in the days when there was only one tier. And there’s another irony: among blue-collar workers, those in manufacturing have traditionally been at the high end of union wage scales, but a $12 starting wage begins to brush against the federal minimum wage (not the current $7.25 an hour, but the proposals before Congress to raise it to $9.80 over three years).
“What we are really asking Americans to do is to tough it out for a while,” says Lawrence Mishel, president of the labor-oriented Economic Policy Institute in Washington. And so far they are—but not just for a while. The Occupy Wall Street demonstrations last year seemed to suggest that people might openly resist, but that movement has faded.
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In the Hoeltge household in Wentzville, just west of St. Louis and a few blocks from the GM plant, Karl is nearly a year into the job his father got him soon after he left community college, where he completed two semesters but did not graduate. Living at home, taking meals with his parents and four siblings, not dating, designing children’s toys, he has managed to save $21,000—a start, he says, but not nearly enough to go out on his own.
Until Karl makes it big as a children’s toy designer, the best alternative, he says, is to work at the factory, where he inspects and adjusts the passenger-side doors as the vans come down the assembly line. “Unfortunately, the best jobs you can get around here, other than at the GM plant, pay not much above the minimum wage,” Karl notes.
Growing up, he had planned to follow in the footsteps of his father, who has spent forty-four of his sixty-two years as an hourly worker at the Wentzville plant, currently assigned to the stamping line, shaping metal into doors, roofs and fenders. Gary Hoeltge’s $28 an hour, along with better benefits than Karl can look forward to, would have been enough for his son, even now. The second tier’s $19.28 ceiling is not. “I’m not a hateful person,” Karl said, “but I’m fairly disturbed by what is happening to me.”
Two-tier agreements are largely a below-the-radar phenomenon. Management and labor don’t call attention to them—from a public relations point of view, they’re a feather in the cap for neither—and I first ran across them almost by chance, during a reporting trip to Milwaukee in the fall of 2010. The city’s unemployment rate had peaked in January of that year at 9.6 percent, in the aftermath of the Great Recession, and had declined only gradually, to 7.3 percent, by December 2012. Elsewhere, the auto crisis had already brought a two-tier system to GM, Ford and Chrysler with the consent of the UAW, which had responded in 2007 to corporate pleas for relief from diminishing profits.
That concession drew a lot of national attention. By 2010, I found two-tier systems also in place—with much less fanfare—at three of Milwaukee’s premier companies, all of them solidly profitable: Harley-Davidson, the motorcycle manufacturer; the Kohler Company, famed for its gleaming bathroom fixtures; and Mercury Marine, which makes outboard motors and other marine engines. Of the three companies, only the 900 workers at Mercury Marine had balked, voting at first to reject a contract with a two-tier system. A few days later, the workers reversed themselves after the company announced that in light of the original vote, it would consolidate production at an existing factory in Stillwater, Oklahoma, and close the one near Milwaukee. In their panicked response, the workers approved a 30 percent pay cut for new hires as well as for veteran employees called back from layoff. And this at a company whose production workers were—and still are—members of the powerful International Association of Machinists.
If the Machinists and the UAW can’t push back against a two-tier wage system, who in organized labor can? Or as Howard Wial, director of the Center for Urban Economic Development at the University of Illinois, Chicago, puts it: “There is a real potential for a long-term downshift in wages across the country.”
In our January 7-14 issue, Josh Eidelson wrote that the new labor campaign against Walmart faces daunting odds, and the stakes are high: most of us live in the Walmart economy.