The Negatives of a Two-Tiered Wage System in Businesses

Two-tiered wage systems constitute an employee salary plan in which senior workers earn more money than new workers. These payment schemes commonly exist in fields with unions, which negotiate pay rates for each level of employee. Employers implement two-tier wage systems to save money and gain a competitive edge, though they often face problems with the system. Negatives of the system include employee discontent and conflicts with unions.

One of the main problems found in two-tiered wage systems stems from the business philosophy of treating all employees equally as a means of fostering a positive and productive workplace. Sampat Mukherjee, author of “Organisation and Management and Business Communication,” points out that two-tiered wage systems pay two sets of workers two different wages for performing the same job. From a purely philosophical perspective, this constitutes an unfair practice and one that leads to actual problems in the workplace.

The inequality inherent in a two-tiered wage system can lead to discontent in the workforce. A fact sheet on the two-tiered wage system prepared by United Electrical, Radio and Machine Workers of America (UE), a national union representing 35,000 workers, reports that workers receiving lower wages resent their employers. This resentment arises from a perceived lack of respect from an employer who pays them less for performing the same work as their co-workers. The UE fact sheet further points out that employee discontent leads to a high degree of turnover, which may prove more costly in the long term than maintaining a single-tiered wage system.

An article published in "Time" magazine makes the case that two-tiered wage systems create resentment not only between employers and employees but also among employees. The article focuses on the United Autoworkers Union and points to growing resentment of the senior workers on the part of the new workers, who earn significantly lower wages as of 2010. Tension among workers leads to unstable or hostile workplaces and in some cases may impede productivity. According to labor relations expert Tom Adams, two-tiered wage systems in businesses destroy solidarity.

Two-tier wage systems can create problems with unions. In the case of the United Autoworkers Union, the two-tiered wage system led to a fracturing, in which different factions of the union formed their own groups. Discontent within a union impedes the collective bargaining process, which may prevent all workers from receiving fair compensation and may even lead to strikes. Furthermore, some unions, such as UE, recommend that all unions resist a two-tiered wage system at all costs, meaning employers implementing such a system may face resistance and even hostility from workers.