Are those detested two-tiered UAW contracts finally on the way out?

Are those detested two-tiered UAW contracts finally on the way out?
Fiat Chrysler CEO Sergio Marchionne, left, and UAW President Dennis Williams shake hands at the opening of contract talks in July. It took a strike threat to produce a tentative deal. (Paul Sancya / Associated Press)

One artifact of the auto industry's near-death experience during the Great Recession is the two-tier contract, in which workers hired after a certain date are saddled with permanently lower wages and benefits than their older peers. The United Auto Workers are poised to reach an agreement with Fiat Chrysler that could spell the end to the gap.

The tentative agreement approved by the UAW's Chrysler Council would narrow the pay differential between tier-one and tier-two workers and close it entirely for tier-two employees after seven years of work. The contract still must be ratified by the membership, which on Oct. 1 rejected by a wide margin an earlier deal that would have left the discrepancy in place.


The two-tier system was a major concession by auto workers during Detroit's darkest days. It was widely detested, but accepted as necessary to put the industry back on its feet. As described by Jane Slaughter of Labor Notes, the 2007 contracts cut wages for newly hired workers to $14 an hour, or half the conventional rate.

What was worst about the two-tier system is that it transferred a harsh cost-cutting tool from other industries into the heart of America's manufacturing economy. President Reagan imposed a wage 25% below the standard for U.S. Postal Service workers hired after 1984.

Demands for second-class health and retirement benefits have since become routine in labor negotiations everywhere. They're a common remedy for the rising cost of public employee pensions; where the law or collective bargaining agreements prevent cutting the pay or benefits for existing workers, it's easier to impose the cutbacks on those not yet hired.

From the employers' standpoint, the two-tier system offers the added dividend of weakening the union by driving a wedge into worker solidarity. Indeed, the UAW's seeming inability to hold the line against the two-tier system may have contributed to its defeat in an organizing drive at a Volkswagen plant in Chattanooga, Tenn., last year.

For the workforce, the danger is that two-tier systems feed on themselves. "The tier-two workers were supposed to be limited to certain 'non-core' jobs or to 20% of the workforce," Slaughter observes, "and to bump up to traditional status when 20% was reached."

But when GM and Chrysler entered bankruptcy in 2009, those limitations went out the window. The lower-tier workers got no path to full pay, no defined benefit pension, and no raises or bonuses for six years. To help GM stay in the black on smaller vehicles, Slaughter reports, the UAW let the ratio of lower-tier workers at one Detroit-area plant rise to 40%.

As older workers retired, the low-wage newcomers would eventually dominate the workforce. Today, among the nearly 140,000 UAW workers covered by contracts at the Big 3 automakers, second-tier workers account for 45% of the workforce at Fiat Chrysler, 25% at Ford and 20% at GM.

As the economy improves, the auto workers are displaying less tolerance for terms that were supposed to represent a temporary sacrifice to help their employers avoid a brush with extinction. The Big 3 are all solidly profitable and looking ahead to higher sales, especially of larger vehicles. Overall new-car sales are expected to rise to nearly 17 million vehicles this year, up from the nadir of 10.4 million in 2009. (Some analysts expect a crimp in the trend if the Federal Reserve begins raising interest rates in the coming months.)

Under the new UAW proposal, "traditional" workers at Chrysler -- those hired before 2007 -- would get raises and bonuses over their current $28.50 hourly wage. Second-tier workers would be on a path to earning as much as $28 after seven years, up from their current maximum of $19.28. There are some other sweeteners, including higher corporate contributions to 401(k) plans and slightly better health benefits for second-tier workers, and improved profit sharing for all workers. In return, the union reportedly will have to accept the expanded use of temporary workers as fill-ins for unionized employees' vacations and days off.

The most important question is whether the Chrysler contract can influence looming talks at Ford, which has higher labor costs in part because, unlike Chrysler and GM, it didn't enter bankruptcy during the recession. But it also has a smaller percentage of workers on second-tier deals. "If the UAW can push back with 45 percent of the workers at Chrysler on them," writes labor historian Erik Loomis of the University of Rhode Island, "the argument that Ford and GM need to keep this arrangement is heavily undermined."

Still, the UAW has been carefully cautioning workers at Ford, which is next up in negotiations, not to count on a me-too deal but rather treat the Chrysler pact as merely setting a "pattern."

That's a departure from tradition, in which the union reached an agreement with one target automaker and replicated it at the others. But breaking the "pattern" may be more important. The two-tier system fundamentally undermined the foundation of collective bargaining in the auto industry. Ending it would be a step forward for equality.

Keep up to date with the Economy Hub. Follow @hiltzikm on Twitter, see our Facebook page, or email