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The UAW and two tier employment

Jul 20, 2015

Walter Reuther, the United Auto Workers union’s greatest leader, has been dead for forty-five years now, killed in a plane crash outside Pellston, a few years before oil shocks and a flood of foreign imports began to drastically change the industry.

Several years ago, soon after the union agreed to accept a two-tier wage system in which new hires would be paid less, I asked Doug Fraser, perhaps the last of his successors to know Reuther well, what Walter would have thought about that? I expected he’d say Reuther would be rolling in his grave.

But instead, Fraser said it was impossible to know. We are living in a different world from the one Reuther helped build. And Walter Reuther was adept at adjusting to new realities. When the union agreed to accept a two-tier system eight years ago, they hoped it would create more jobs.

There is some evidence that it did do that.

Nobody then foresaw that the auto industry was about to have a near-death experience which took two of the automakers into bankruptcy.

Perhaps being able to pay some workers less marginally helped the car companies’ survival. But now everything has changed again. The formerly Big Three are a lot leaner and a whole lot smaller than they were, but they are once again profitable, making billions a year.

The UAW thinks their membership has sacrificed enough. Most of their higher-paid longtime, or “legacy,” workers make $28.50 an hour. But they haven’t had a raise in eight years, which, in reality, means they’ve had a pay cut.

And the newer, Tier II workers can make a maximum of $19.28 an hour, which means that some workers are making more than $300 dollars a week less than another guy next to them who is doing the same job.

Even Sergio Marchionne, the flamboyant head of Fiat Chrysler, recently called the two tier wage system “almost offensive” and said it would be impossible to sustain.

But in the past, he’s indicated that he’s more interested in lowering the wages of the more highly paid workers than raising the second tier. That’s bound to be a non-starter with the union.

Some experts think a gradual process where the new workers eventually become eligible for the top salary is the most likely outcome. But the companies are bound to argue that they cannot risk having their labor costs become so high that they can no longer stand up to international competition.

Many years ago, George Romney told me that back in the 1950s, he once or twice had secret lunches with Walter Reuther. Romney, then president of American Motors, told me that he and the labor leader agreed that the time-honored practice of more and more raises for the workers followed by costs passed on to the consumer couldn’t go on forever.

But, Romney said that neither man knew how to stop it in their lifetimes. Well, seven years ago, we saw that system crash. Now, this year’s auto talks may well determine a lot more than what future salaries and benefits will be.

They may indicate clearly what kind of future is ahead for the UAW, and possibly whether it even has one at all.

Jack Lessenberry is Michigan Radio's political analyst. Views expressed in his essays are his own and do not necessarily reflect those of Michigan Radio, its management or the station licensee, The University of Michigan.