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Detroit Is Bluffing UAW on Third-Class Jobs

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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Back in 2007, when times were tough for the auto industry, the United Auto Workers agreed to a two-tier wage structure that allowed them to preserve salaries for current workers, while still achieving needed cuts to labor costs. Now automakers are proposing a third tier that will be even lower than the existing pay structure, the better to allow them to compete with non-union plants owned by foreign companies.

If this is a serious proposal, it would be a big deal. But I tend to doubt that it's a serious proposal. Contract negotiations are coming up, and the UAW is making noises about eliminating that second tier, something that second-tier workers are understandably very interested in. This strikes me as a bargaining chip designed to neutralize those proposals: "You want no tiers? Well we want three! How about we compromise on the two we have?"

U.S. automakers are profitable right now, thanks to falling oil prices which have boosted demand for bigger cars and trucks. They're going to have to raise wages. But they're still in a competitive market, and compensation is still higher than what non-union, foreign-owned plants pay, especially for the first-tier workers. So unless those workers want to give some of their pay back, I'm guessing that two-tier pay is here to stay, but three tier pay is an idea whose time has not yet come -- and never may.

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To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
Cameron Abadi at cabadi2@bloomberg.net