Starting Out Means a Steeper Climb

Starting Out Means a Steeper Climb

Young workers have it a lot tougher than their parents did.


From 7 am to 3 pm each day, John Arnold darts around Caterpillar’s “materials-handling facility” in his forklift, maneuvering it with the deftness of a NASCAR driver. His job is to unload tractor parts from flatbed trucks and then deposit those parts–from engine gaskets to one-ton tractor buckets–in the huge store yard at the plant, just east of Peoria, Illinois. An earnest, deep-voiced giant of a man, Arnold likes his job, with one major reservation–twentysomethings like him can earn only three-fourths as much as the fiftysomethings who work alongside him.

Under the two-tier contract at Caterpillar, the most Arnold can ever earn is $14.90 an hour, or $31,000 a year–so little, he says, that some of his co-workers are living at home with their parents. “Some,” he said, “are even on food stamps.”

A 52-year-old who works alongside Arnold, doing exactly the same work, earns $19.03 an hour, or just under $40,000 a year, because employees who started before Arnold began in 1999 are on a higher wage scale. “I don’t like it,” Arnold said. “I wish I was at least able to get to the pay scale that the guys who are right next to me are making.”

Scott Wilcoxon, a 26-year-old Navy veteran who not long ago served as an electrician on a nuclear submarine, operates five computer-controlled metal-cutting machines at Caterpillar. The maximum he can ever earn is $19.84 an hour, 21 percent below the maximum for the 50-year-olds working next to him. Wilcoxon says it’s a struggle to support his wife and three children. “We can buy our food and our gas,” he says. “But we can’t go out to eat at a nice restaurant. We can’t go to a movie. We can afford very few extras.”

Caterpillar, based in Peoria, is an enduring symbol of America’s industrial prowess, thanks to the success of its earth-moving machinery. At the end of World War II, the US Army left behind thousands of Caterpillar tractors to help Europe and Asia rebuild, a gesture that ultimately established Caterpillar worldwide. For decades the company reigned as the king of tractor production, and its factories in and around Peoria paid some of the best wages in the American heartland. In the late 1980s, Caterpillar’s factory workers earned $16 an hour on average, equivalent to $28 an hour in 2007 dollars.

“My dad’s worked at Caterpillar for thirty-seven years, and when I was a kid, he was making some good money,” Arnold said. “I was hoping that I could eventually get to where my dad’s at.” His father, a millwright who repairs conveyor belts and other machinery, works in the same giant materials-handling facility and earns $25 an hour, nearly twice as much as his son. (Arnold’s pay is lower than his father’s not just because he is on the lower tier of a two-tier pay scale but also because he works in a less-skilled pay grade.)

John Arnold and Scott Wilcoxon are the type of workers on whom America’s industrial success was built: diligent, dedicated and determined. But because their wages are lower than those of the previous generation, they are part of a reverse economic evolution unfolding at workplaces across the country: at General Motors, Ford and Chrysler; the Dana Corporation’s more than two dozen auto parts plants; American Axle’s two plants in upstate New York; ACF’s railcar plant in Pennsylvania; and longshoremen’s hiring halls along the East Coast.

Since manufacturing companies have pushed hardest for a lower-wage tier for young workers, this phenomenon is most prevalent among the nation’s 13.7 million factory workers.

Caterpillar began insisting on a lower-wage tier in the early 1990s. After losing more than $1 billion in the 1980s, in part because of lower prices offered by Komatsu and other foreign competitors, Caterpillar decided to take a hard line in bargaining with the United Auto Workers. Convinced that it needed to cut costs, the company demanded a dual wage scale that would pay new workers 60 percent less than experienced workers earned. The UAW resisted those demands and called a strike by 12,000 Caterpillar workers in late 1991.

After five months, Caterpillar emerged victorious and instituted a system that paid new workers 20 to 40 percent less than the other workers received. In Caterpillar’s parlance, the lower pay scale is called “a competitive wage”–not so high that Caterpillar becomes uncompetitive against foreign tractor makers yet high enough to attract the workers it needs. The company seems confident that its pay strategy will assure its future as a thriving company.

But Wilcoxon’s wife, Anessa, views the competitive wage from a different perspective. “My parents’ house was bigger,” said Anessa, whose father worked for Caterpillar for three decades. “We always had two cars when I was growing up. When we went out to eat–we had a family of five–we’d always go to a sit-down place. When we go out to eat now, it’s McDonald’s or Hardee’s.” The Wilcoxons rent a run-down three-bedroom house and have a second car only because Anessa’s parents gave them their old GMC Sierra truck.

Caterpillar’s CEO, Jim Owens, says the company’s competitive wage strategy isn’t destroying middle-class jobs so much as it’s preserving jobs in America. If Caterpillar did not maintain its competitive wage rates, Owens says, his company would be closing plants in the United States or moving operations overseas, or perhaps both. But thanks to its competitive wages, Owens says, Caterpillar has been able to increase its Midwest workforce, expanding it by 5,000 in 2005. “What we’ve done is reposition ourselves to actually grow employment in our Midwestern plants,” Owens said. “We finally have a labor cost that is viable.”

Caterpillar’s posture points to a rough future for millions of young Americans who may someday want factory jobs, jobs that workers without college degrees embraced in decades past to lift themselves into the middle class. Not long ago, the typical compensation package for unionized factory workers in the Midwest was $40 an hour, including benefits. But according to Daniel Luria, an economist at the Michigan Manufacturing Technology Center, that package is now around $25 an hour–$13-$18 an hour in wages plus $9 or so in benefits.

Among young workers at Caterpillar, the company’s two-tier wage scale has engendered huge resentment. “Caterpillar,” Wilcoxon said, “has monthly business meetings in the factory where managers talk about how the company is doing. They talk about their record sales and record profits, and we sit there, and they wonder why we’re still bitter about the contract. I sometimes call those monthly meetings our monthly slap in the face. And each year the top executives’ salaries are printed on the front page of the newspaper. They may not mean to, but it feels like they’re rubbing it in our faces.”

Recently, Caterpillar has piled up record earnings. Its net profits soared to $3.5 billion in 2006, up 74 percent from two years earlier. Those profits amount to $37,000 per employee, almost as much as Wilcoxon earns each year, convincing him and many other young workers that Caterpillar can easily raise wages without jeopardizing its competitiveness.

Shane Hillard, a 29-year-old who works at the same factory as Wilcoxon, said, “I don’t understand how you’re supposed to be able to buy a house and live the American dream when you work for one of the biggest companies in the United States and it’s paying you just $12 an hour.”

America has always stood for progress, for economic advancement and upward mobility. But for many of today’s young Americans, progress seems uncertain because entry-level wages and benefits have languished while housing costs and college tuition have risen. As one expert put it, “The next generation is starting their economic race fifty yards behind the starting line.”

Entry-level wages for college graduates and high school graduates fell from 2001 to 2005, after factoring in inflation, and median income slipped in families with at least one parent aged 25 to 34. Today’s young workers face these wage problems because they are the first generation to come of age after the high-tech bubble burst, after offshoring jobs to India and elsewhere became popular, and after millions of factory jobs disappeared in a new wave of deindustrialization. “Young workers are on the cutting edge of experiencing all the changes in the economy,” said Lawrence Mishel, president of the Economic Policy Institute.

Longer-term wage trends have been just as troubling. From 1979 to 2005, entry-level wages for male high school graduates without college degrees slid 19 percent (after inflation); for their female counterparts, they fell 9 percent. For young Americans with college degrees, entry-level wages did rise, although modestly and still far slower than wages for most older workers with college degrees. One study found that men who were in their 30s in 2004 had a median income 12 percent less, after factoring in inflation, than their fathers’ generation did when they were in their 30s.

The changing job market is undercutting entry-level wages for those who do not go to college. “In the 1960s and 1970s, you saw high school graduates getting good jobs at Ford and AT&T, jobs that in inflation-adjusted terms were paying $20 or $25 in today’s wages,” said Sheldon Danziger, a professor of public policy at the University of Michigan. “Nowadays most kids with just high school degrees will work in service-sector jobs for $10 or less. That’s where you see a big drop.”

All told, a bit more than one in four of the 45 million workers under 35 does not have health insurance from any source, by far the highest rate of any age group. As for young workers with just high school degrees, two-thirds do not receive health coverage in their entry-level jobs, up from just over one-third in 1979.

Corporate America’s increasing tightfistedness over pensions is also hitting young workers hard. The share of workers 25 to 34 participating in an employer-sponsored pension plan or 401(k) slid to 42 percent in 2005, down from 50 percent five years earlier. As for workers aged 35 to 64, 55 percent participate in employer-sponsored retirement plans. The picture is worst for young high school graduates; fewer than one in five participates in a retirement plan in an entry-level job.

Frustrated by his economic situation at Caterpillar, Scott Wilcoxon has enrolled in an online college program with Colorado Technical University. He was a star student in high school, studying two foreign languages and planning to major in physics in college. But he fell in love with Anessa, married at 18 and suddenly had a child to support. He joined the Navy instead of going to college because that enabled him to serve his country while his military pay supported his family. With the Navy now providing tuition assistance, he has decided to pursue a bachelor’s degree in business, specializing in human resources. He used to dream of becoming a teacher, but he has since decided against it because “teachers don’t exactly make enough to support a family of five.” Now he hopes to work for a large corporation, training employees on mechanical operations. That way he can still teach, while earning more than a public school teacher.

Many nights after he returns home from Caterpillar at 11:30 pm, Wilcoxon studies until 1:30am. Sometimes he even hits the books during his half-hour lunch break at Caterpillar. “I’ve reached the top of the unskilled job market,” Wilcoxon said. “This is the only thing that’s going to allow us to get out of this upper-lower-class way we live.”

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