For the first time in a generation, the United Auto Workers membership has rejected a national labor contract. The contract was negotiated by UAW leaders and Fiat Chrysler Automobiles. Sixty-five percent of the rank-and-file voted no, the UAW said.
The big source of controversy: a two-tiered system of compensation that pays new hires far less than company veterans. When Fiat Chrysler found itself in survival mode in 2007, it proposed the tiered system favoring longer-term workers over new ones. The union grudgingly said yes.
The system of paying workers differently for the same work goes back to at least 1983 in the U.S. economy.
“The airline industry, after deregulation, was among the first to introduce two-tier wages,” said Tom Kochan, co-director of the MIT Sloan Institute for Work and Employment Research. “American Airlines was the first one, and United followed.”
Today, the Big Three automakers employ tiered wages and benefits. So do many union-shop auto-parts suppliers, nurses, grocery store workers and public-sector workers.
But in each case, then and now, new workers grumbled.
“You’re working right next to somebody who is getting paid 30 percent more than you,” University of Michigan labor economist Donald Grimes said, “and has benefits that are worth far more than your benefits. And that doesn’t make people happy.”
This is the gripe of Fiat Chrysler workers, nearly half of whom are newer and thus on the lower-paid “B-team.”
The company’s two-tier system has made its labor costs competitive with nonunion rivals like Toyota. But if labor costs rise again, the company could simply close its U.S. plants.
“It’s very easy to start building plants in other countries,” said Arthur Wheaton of the Industrial and Labor Relations School at Cornell University. “And then you try to have a race to the bottom and say, ‘Well, if you don’t do this, we’ll move it all to China or Mexico.'”
At this point, Fiat Chrysler could move its plants, or workers could strike, or labor and management could return to the bargaining table.
Here, by the way, is how the animosity ended for the airline industry in the 1980s: Two tiers eventually became one. But workers at the top level ended up with lower pay and fewer benefits.
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