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Two-tier pay system brings reopening of GM plant, reviving hope

Many communities — and labor unions — have welcomed the return of factory jobs, accepting the cut in pay as part of the reality of today's economy and the global marketplace.

December 18, 2011|By Don Lee, Los Angeles Times
  • Autoworkers cheer an announcement that GM will begin building the Chevrolet Equinox at the plant in Spring Hill, Tenn., next year, and a midsize vehicle for the 2015 model year. The total investment of $244 million is projected to create nearly 1,900 jobs.
Autoworkers cheer an announcement that GM will begin building the Chevrolet… (Erik Schelzig / Associated…)

Reporting from Spring Hill, Tenn. — A few days before Thanksgiving, hundreds of people from around the country jammed into the idled General Motors Co. plant here, cheering as company and union officials pushed a big red button signifying the reopening of the car-assembly factory.

The ceremony marked a rare bright moment for workers in America's long-beleaguered auto industry. But there's a catch: Under its agreement with the United Auto Workers union, GM will be hiring mostly new workers for the plant who will start at $15.78 an hour, about half the prevailing rate paid to the company's production employees.

A two-tier pay system, adopted by airlines years ago and embraced more recently by law firms, could breed hard feelings among workers paid different rates for doing the same jobs. Economists have a bigger fear that the lower wages could undermine the middle-class living that the UAW took decades to negotiate.

At first glance, the scaled-down pay for some employees seems starkly at odds with Henry Ford's famous decision nearly a century ago to double daily pay to $5, a move that boosted workers' morale — as well as their ability to buy Ford cars.

"This is what Henry Ford understood by paying his workers three times more than the industry average," said Robert Reich, a Clinton administration Labor secretary who teaches at UC Berkeley.

What concerns Reich most is that whittled-down paychecks will erode spending power and thus lead to fewer sales, weak hiring and stagnant wages, creating a vicious cycle. "You shoot yourself in the foot eventually," he said.

But many people here look at the situation differently.

After getting pulverized by the recession and high unemployment, they said the reopening of the GM plant, which originally produced the Saturn brand, had revived hopes in their hard-hit area in central Tennessee.

"You can make $16 an hour or zero dollars," said Michael Dinwiddie, Spring Hill's mayor.

Kip and Ann Ellis think it may mark the beginning of the road back for their family and others in the struggling U.S. economy.

When the car plant shut down two years ago, Kip Ellis was among hundreds who moved to GM's factory in Lansing, Mich., leaving behind his wife and their three daughters.

Now, with manufacturing of the Chevrolet Equinox scheduled to start in the second half of next year, Ellis, 48, has a chance to return home and be reunited with his family.

The Ellises also are hoping that their son-in-law, who drives a tow truck for $10 an hour and has no health insurance, could get a job there.

"It's a start," Ann Ellis said. "It opens up a door — even coming in at the lower rate."

Far beyond this historic Civil War town lined with sugar maple and magnolia trees, there's a growing view that two-tier wages may be part of the formula for renewed prosperity.

For decades, corporate America moved relentlessly to outsource jobs overseas, in the process closing tens of thousands of domestic factories. But more recently manufacturers have been bringing some jobs back home, thanks in part to lower labor rates in the U.S. and rising costs overseas.

With about 25 million Americans unable to find full-time work, many communities — and labor unions — have welcomed the return of factory jobs, accepting the cut in pay as part of the reality of today's economy and the global marketplace.

"If you're going to want to have front-line jobs in the United States being expanded, they're going to need to be more economical — and this is a test," Lawrence Katz, a Harvard labor economist, said about the two-tier system. "I see it as potentially expanding new opportunities in an industry and seeing if that will work in the U.S."

Whether it leads to more jobs and higher pay or to sinking wages and a lower standard of living will depend ultimately on how successful companies are operating in the U.S.

Autoworkers have long enjoyed enviable middle-class pay and benefits, but those labor costs helped price GM and other manufacturers out of the global market. GM filed for bankruptcy in 2009 and got a multibillion-dollar federal bailout. Since then GM has returned to profitability as it has narrowed cost, service and quality gaps with its competitors.

The latest UAW-GM contract calls for about 1,800 jobs to be brought back to Spring Hill. It doesn't specify what percentage of those workers would be new hires, but GM officials said most of them would come in at the lower rate. Their pay would go up to $19.28 an hour by 2015, when the contract expires. Anything beyond that will have to be negotiated.

"We play in a global economy that is being challenged," said Scott Sandefur, GM's labor relations director.

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