A two-tier system is a type of payroll system in which one group of workers receives lower wages and/or employee benefits than another. [1]
The two-tier system of wages is usually established for one of three reasons:
A much less common system is the two-tier benefit system, which extends certain benefits to new employees only if they receive a promotion or are hired into the incumbent wage structure. [3] [4] [5]
That can be distinguished from traditional benefit structures, which permit employees to access a benefit, such a retirement pension or sabbatical leave, after they have achieved certain time-in-position levels.
Two-tier systems became more common in most industrialized economies in the late 1980s. [6] [7] They are particularly attractive to companies with high rates of turnover for new hires, such as in retail, or with many high-wage, high-skilled employees about to retire. [8]
Trade unions generally seek to reduce wage dispersion, the differences in wages between workers doing the same job. [3] Not all unions are successful, however. A 2008 study of collective bargaining agreements in the United States found that 25% of the union contracts surveyed included a two-tier wage system. [3] Such two-tier wage systems are often economically attractive to both employers and unions. Employers see immediate reductions in the cost of hiring new workers. [3] Existing union members see no wage reduction, and the number of new union members with lower wages is a substantial minority within the union and so is too small to prevent ratification. [3] [6] [8] Unions also find two-tier wage systems attractive because they encourage the employer to hire more workers. [3] [6] [9]
Some collective bargaining agreements contain "catch-up" provisions, which allow newer hires to advance more rapidly on the wage scale than existing workers so that they reach wage and benefit parity after a specified number of years, or they provide wage and benefit increases to new hires to bring them up to party with existing workers if the company meets specified financial goals. [5]
Some studies have found problems with two-tier systems like higher turnover for newer lower-paid employees and a demoralized workforce. [8] [13] After enough time, a two-tier wage system can permanently lower wages in an entire industry. [8] Lowering productivity expectations for new hires seems to alleviate some of those problems. [9]
A two-tier system is a type of payroll system in which one group of workers receives lower wages and/or employee benefits than another. [1]
The two-tier system of wages is usually established for one of three reasons:
A much less common system is the two-tier benefit system, which extends certain benefits to new employees only if they receive a promotion or are hired into the incumbent wage structure. [3] [4] [5]
That can be distinguished from traditional benefit structures, which permit employees to access a benefit, such a retirement pension or sabbatical leave, after they have achieved certain time-in-position levels.
Two-tier systems became more common in most industrialized economies in the late 1980s. [6] [7] They are particularly attractive to companies with high rates of turnover for new hires, such as in retail, or with many high-wage, high-skilled employees about to retire. [8]
Trade unions generally seek to reduce wage dispersion, the differences in wages between workers doing the same job. [3] Not all unions are successful, however. A 2008 study of collective bargaining agreements in the United States found that 25% of the union contracts surveyed included a two-tier wage system. [3] Such two-tier wage systems are often economically attractive to both employers and unions. Employers see immediate reductions in the cost of hiring new workers. [3] Existing union members see no wage reduction, and the number of new union members with lower wages is a substantial minority within the union and so is too small to prevent ratification. [3] [6] [8] Unions also find two-tier wage systems attractive because they encourage the employer to hire more workers. [3] [6] [9]
Some collective bargaining agreements contain "catch-up" provisions, which allow newer hires to advance more rapidly on the wage scale than existing workers so that they reach wage and benefit parity after a specified number of years, or they provide wage and benefit increases to new hires to bring them up to party with existing workers if the company meets specified financial goals. [5]
Some studies have found problems with two-tier systems like higher turnover for newer lower-paid employees and a demoralized workforce. [8] [13] After enough time, a two-tier wage system can permanently lower wages in an entire industry. [8] Lowering productivity expectations for new hires seems to alleviate some of those problems. [9]