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Management attitudes toward two-tier pay plans

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Abstract

Two-tier pay plans, under which new hires are paid on a lower pay scale than existing employees, have been used with increasing frequency in union-management contracts. The two-tier phenomenon appears to be associated with the wider concession bargaining movement that began in the early 1980s. In this study, management attitudes toward and forecasts about two-tier pay plans are explored by means of a questionnaire survey.

In general, the management community is found to be optimistic about the spread and utility of two-tier pay plans in the near term. Managers in firms that actually have two-tier plans are more enthusiastic about their impacts than other managers. Over a longer term, however, the managers surveyed tend to believe that separate wage scales under two-tier plans will eventually be merged into a unified scale.

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References

  1. Jane Seaberry, “Two-Tiered Wages: More Jobs vs. More Worker Alienation,”Washington Post, April 7, 1985, pp. G1–G3; Irwin Ross, “Employers Win Big in the Move to Two-Tier Contracts,”Fortune, April 29, 1985, pp. 82, 84, 88.

  2. John Hoerr and Dan Cook, “A Pioneering Pact Promises Jobs for Life,”Business Week, December 31, 1984, pp. 48–49; “Lifetime Employment, Lower Pay for New Hires Accepted Under IUE Pact at GM Packard Plant,”Daily Labor Report, December 17, 1984, p. A8.

  3. The Teamsters’ National Master Freight Agreement of 1985 was narrowly ratified by the membership and was initially challenged by a dissident group. An earlier attempt to modify the Teamsters’ 1982 contract to include a two-tier plan was overwhelmingly rejected. See “Teamsters Announce Approval of Master Freight Pact, Part-Time Workers Sue to Protest Exclusion from Vote,”Daily Labor Report, May 20, 1985, pp. A10–A11; “Contract Rider Endorsed by Presser Overwhelmingly Rejected by Teamsters,”Daily Labor Report, September 16, 1983, pp. A7–A8.

  4. Aaron Bernstein and Zachery Schiller, “The Double Standard That’s Setting Worker Against Worker,”Business Week, April 8, 1985, pp. 70–71. A representative of the United Food and Commercial Workers Union argued that workers in the lower tier would “feel sold out before they even became union members.” See Beth Brophy, “Two-Tier Pay Plans Stir Debate,”USA Today, June 12, 1985, pp. 1B–2B.

  5. For example, a Los Angeles area retail foodstore chain in early 1985 began substituting lower-paid general merchandise clerks for higher-paid food clerks. Although not strictly a two-tier arrangement, the food/merchandise division is a close cousin of two-tier wage plans and has existed for many years in some markets. See Harry Bernstein, “Labor,”Los Angeles Times, May 1, 1985, Part 4, p. 6. In some cases, the substitution incentive has induced employers to offer financial rewards for early retirements of workers in the upper tier. See “Northwest Offers Senior Flight Attendants Cash, Travel Benefits for Early Retirement,”Daily Labor Report, October 5, 1984, pp. A5–A6.

  6. Archer Cole, “The Two-Tier Wage System is Damaging,”New York Times, September 14, 1984, p. A31; Roy J. Harris, Jr., “More Concerns Set Two-Tier Pacts with Unions, Penalizing New Hires,”Wall Street Journal, December 15, 1983, p. 33.

  7. Malcolm H. Liggett, “The Two-Tiered Labor-Management Agreement and the Duty of Fair Representation,” unpublished paper presented at the December 1984 meetings of the Industrial Relations Research Association; Oral presentation of Marc Rosenblum, chief economist, Equal Employment Opportunity Commission, at the same meetings; Steven Flax, “Pay Cuts Before the Job Even Begins,”Fortune, January 9, 1984, pp. 75–77.

  8. The Delta arrangement is referenced in Charles M. Rehmus, “The National Mediation Board at Fifty,” paper dated December 1984 available from the National Mediation Board, p. 58. Note that the predominance of two-tier plans in the union sector is evidence of the political mechanism in the union decision-making process. With a two-tier plan, existing workers avoid wage freezes or cuts (and possibly layoffs) at the “expense” of future new hires (who do not have a voice in the decision). This outcome is an extreme form of the more general “median voter” model, which is often applied to union decisions to explain the important voice of senior workers. See, for example, Richard B. Freeman and James L. Medoff,What Do Unions Do? (New York: Basic Books, 1984), p. 18.

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  9. As with other features of union-management contracts, it is difficult — if not impossible — to determine when a contractual device first was used. One article claims that two-tier plans can be found as far back as the 1930s. See Flax, “Pay Cuts Before the Job Even Begins.” The BNA data used for Table 1 were drawn from “Two-Tier Wage Systems Found More Common in Nonmanufacturing Sector,”Daily Labor Report, February 20, 1985, pp. B1–B4. Two-tier wage plans were found in less than 4 percent of the contracts featuring first-year wage freezes and cuts in 1982, according to the authors’ tabulations. Since such contracts accounted for only 12 percent of the settlements in that year, the overall two-tier proportion would have been less 1 percent. Within that group, however, are the GM and Ford settlements that provided for lower wages for new hires on a temporary basis.

  10. Information drawn from computer files maintained by author Mitchell based on the biweekly survey of union settlements reported in theDaily Labor Report. See also note 9.

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  15. Industry wage surveys for the airline industry provide wage dispersion data for pilots and flight attendants of certified air carriers. The gap between the upper and lower quartiles of the wage distribution rose from 14 to 26 percent during 1975–1980 for captains (pilots). The comparable ratios for flight attendants during 1970, 1975, and 1980 were 32 percent, 33 percent, and 43 percent. (No pilot data are available for 1970.) There was little trend apparent for ticket agents or aircraft cleaners. Source: U.S. Bureau of Labor Statistics,Certified Air Carriers, September 1980, Bulletin 2129 (Washington: GPO, 1982), pp. 5, 8, 10, 15

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  18. Relatively high proportions of workers under major union agreements (those covering 1,000 or more employees) were reported as of 1980, i.e., prior to the two-tier movement, in such industries as retail food stores, air transportation, and transportation equipment (including aerospace). See Edward Wasilewski, “Scheduled Wage Increases and Escalator Provisions in 1980,”Monthly Labor Review, 103 (January 1980): 10.

  19. Audrey Freedman,The New Look in Wage Policy and Employee Relations, Report 865 (New York: Conference Board, 1985), p. 12.

  20. A Conference Board survey found that the firms included in the sample deal with a median of four national-level unions. Twenty percent of the companies surveyed dealt with a dozen or more unions. Source: Audrey Freedman,Managing Labor Relations, Report 765 (New York: Conference Board, 1979), p. 2.

  21. This view indicates that despite recent research evidence suggesting that the labor relations climate and productivity are interconnected, many managers are not convinced that such a linkage exists. See Harry C. Katz, Thomas A. Kochan, and Kenneth R. Gobeille, “Industrial Relations Performance, Economic Performance, and QWL Programs,”Industrial and Labor Relations Review, 37 (October 1983): 3–17.

  22. The “consequences” questions on the original questionnaire required responses of “large improvement,” “some improvement,” “no effect,” “some decline,” and “large decline.” These were coded +2, +1, 0, − 1, and − 2, respectively. Table 3 presents a condensed version of these responses for expositional convenience. Note that the coding for the “usefulness” and “problems” questions of Table 3 does not include a “0” response. This was done because there is no neutral response to those questions in contrast to the “consequences” questions.

  23. At a conference in late 1984, Peter J. Pestillo, Vice President of Employee Relations at Ford Motor Company, was asked to comment on two-tier pay plans, which the automobile industry briefly adopted in 1982. Pestillo indicated that he viewed such plans as “the wave of the future” but indicated that the automobile industry was not yet ready for further steps toward a two-tier system. See his comments in James H. Ballagh, ed.,Employee Relations Outlook: Impact of Foreign and Domestic Competition (Los Angeles: UCLA Institute of Industrial Relations, 1985), sect. 5, p. 2.

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Authors and Affiliations

  1. University of California/Los Angeles, 90024, Los Angeles, CA

    Sanford M. Jacoby & Daniel J. B. Mitchell

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  1. Sanford M. Jacoby
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  2. Daniel J. B. Mitchell
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The authors would like to thank Maury Pearl and Gwang-Gi Baek for research assistance on this study.

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Jacoby, S.M., Mitchell, D.J.B. Management attitudes toward two-tier pay plans. Journal of Labor Research 7, 221–237 (1986). https://doi.org/10.1007/BF02685131

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