1. To what extent is the renewed job growth in the automobile industry in the United States due to the use of two-tier wages?
The renewed job growth in the automobile industry in the United States after the recession and introduction of two-tier wages and after the contract between GM and the United Auto workers (UAW) has significantly addressed the in equal pay in two tier pay structure. This system has shown a new route of payment to the industries. Though the two-tier wages has shown high difference between the veterans' employee and the new employees pay, it has significantly reduced the labor cost in production of the vehicles which has in turn saved a significant revenue to the company. Also this system turned out to be providing employment for more numbers of labors.
Taking particular case of General Motors, after the introduction of the two-tier wages plus outsourcing it is assumed to reduce from $1160 to $710 per vehicle i.e. $450 per vehicle. Annually, GM is saving $72 million which is perfect example of how two-tier wages has divided the job opportunity to more number though the Tier II has lesser pay but could accommodate more number of labors then Tier I which is highly paid.
2. To the degree job growth (and increased car sales that come from more competitive labor costs) is based on two tier-wage structures, how sustainable is this approach? Consider, for example, that Fiat and Chrysler CEO, Sergio Marchionne stated that “Long term, (the system) is not a viable structure. It creates two classes of workers within the plant. It doesn’t work in the same direction we are working…to get this organization to work in unison.” Why would Mr. Marchionne make this statement? What are the potential drawbacks of a two-tier structure? When would we expect any such drawbacks to materialize?
Two-tier is introduced as short term solution after the recession that hit the most of the industries of United States to lower the labor cost to be competitive in the market. This might seem sustainable in the short run but it will be a failure in long term.
I totally agree with Mr. Marchionne, though this system seem profitable to the company but it is not viable in term of employee. This system will create gap and misunderstanding between the tiers, since the tier I are getting highly paid in comparison with the Tier II or the outsourced workers for the potentially same level of work. Dissatisfaction in job mean decrease in productivity. This type of system will create a negative impact in the overall job field, people eagerly looking for the job will try to get the job at any cost after knowing the Tier I pay, dissatisfaction continues and it will go in loop.
The main disadvantage of this system is inequality of pay between the potentially same works.
This type of drawbacks of the system won't take too long to materialize. It will start to get actual when the Tier II realize his/her job description is as same as the Tier II employee and the pay they are getting is too low in compare.
3. What about the use of non-GM workers at the Chevy Sonic plant? What might Mr. Marchionne think about that approach?
Non-GM workers are getting $20 per hour which is lesser than both Tier I and Tier II pay. This clearly has created a visible difference between the levels of pay for the labor for the same work. Inequality in may will create dissatisfaction between the workers.
Mr. Marchionne has already shown his dissatisfaction against the two-tier wages, dissatisfaction in a state of inequality of the pay and definitely he will not support the use of non-GM workers at the Chevy Sonic plant.
4. Will the two-tier wage structure go away in the near future? Summarize the pressures to eliminate it as well as the pressures to keep it. Be sure to consider labor costs and productivity of workers and plants at other companies and in other parts of the world. You may wish to do some research on the new Volkswagen plant in Chattanooga, Tennessee. Also, consider that the Automotive News estimates that the Ford Fiesta (a competitor to the Chevy Sonic) plant in Cuautitlan, Mexico may have labor costs as low as $150 per vehicle.
In near future, continuation of the two-tier wage structure will dis-continue and the outsourcing will be highly active where labor pay rate is low. This system has helped the automobile industry to get back to current situation after the recession.
Industries will be very much keen to keep the system intact since the labor cost per vehicle will be cut off in huge amount due to this type of system and this system has helped them come out of the loss. Though turnover rate will be higher, it won't impact much in the labor industry since this sort of job do not require higher qualification. Due to the lesser labor cost, the benefit will goes out to all, the employer, the employee and the consumer. This pressurize to keep the system intact.
The major issue of this system is inequality of pay with same work between the labors. This creates dissatisfaction between the different Tier level, dissatisfaction means reduction in the productivity. Dissatisfaction and reduction in productivity means higher turnover rate, higher turnover rate impacts the industry. The new labors had to be trained from the basic and the cost will go up for the company. Due to inequality in pay this system has to be taken out.
The outsourcing of the labor to the countries where labor pays are low like in Mexico are also being one of the most common strategies by the automobile companies in reducing the production cost. This is also promoting the two-tier system. This process reduces the employment cost developing less costly vehicles. This system provides relocating the industry where the labor cost is low thus creating need to keep the system intact.
