Canadians show one way out of Tier 2

Auto workers climb a ladder of raises

In the first year, Canadian auto workers earn 60 percent of full pay or $20.39 Canadian ($16.72). By year four, it is 70 percent. By year seven, it's 80 percent. And it reaches 90 percent in year nine.
Tales of Tier 2
The Detroit 3 have different approaches to paying entry-level workers in the U.S. and Canada.
U.S.: Entry-level UAW workers are paid roughly half the wages and benefits of veteran workers and have no path to eventually earn as much as older-seniority peers.
Canada: Hires represented by Unifor (successor to the CAW) start at 60% of the maximum wages of legacy co-workers but are put on a 10-year ladder to "grow into" top wages over that time.

As the UAW this year seeks to roll back or eliminate the lower-paying Tier 2 wage system at the Detroit 3, there's a model to the north that auto worker Lyle Little likes.

Unlike entry-level hires in the United States, Little, who was hired into Ford's Oakville, Ontario, assembly plant in October, eventually can earn the same maximum wages as legacy workers who started decades earlier.

It will take a 10-year ladder of ascending raises to get there under a contract that the Detroit 3 negotiated with Canadian auto workers in 2012.

But that's better than the thousands of UAW-represented workers hired since 2011, the vast majority of whom can never catch up to their older Detroit 3 co-workers under existing four-year contracts that expire in September.

That inability is, by definition, what makes those UAW hires Tier 2.

"What we have here is easier to swallow," said Little, a 23-year-old native of Windsor, Ontario, whose father, Tim Little, is an auto worker at Ford's Essex Engine Plant in Windsor.

The Canadian model for entry-level wages is sure to be considered when UAW bargainers begin contract negotiations with their Detroit 3 counterparts this year, said Kristin Dziczek, director of the industry and labor group at the Center for Automotive Research in Ann Arbor, Mich.

While the Detroit 3 won't formally comment on negotiations, they accepted this system when it was put in place in 2012.

Call for change

Dziczek said the UAW rank-and-file sent a clear message to leaders at the UAW bargaining convention in March that they don't like Tier 2 and want it changed during this year's master contract negotiations. Tier 2 is anathema to the union ideal of equal pay for equal work.

Under the current system, a Tier 2 worker earns between $15 and $19 an hour while legacy workers earn about $28.

UAW President Dennis Williams said in a statement that the union would seek to "bridge the gap" in pay between veteran and Tier 2 workers, but he would not discuss details.

The UAW first acceded to Tier 2 in concessionary 2007 contracts with the Detroit 3. But Tier 2 has become deeply entrenched since 2011, when the Detroit 3 started hiring again after the recession.

Today, there are about 39,000 Tier 2 workers at the Detroit 3's U.S. factories, representing 29 percent of the total 137,000 hourly workers at the carmakers.

The Detroit 3 argue that Tier 2 is part of the reason why they have been hiring aggressively at U.S. plants. Even with it, Ford Motor Co. and General Motors still have hourly labor costs approaching $59 an hour vs. the high $40s at the transplants and Fiat Chrysler, according to CAR.

The FCA US number is so much lower because it has taken full advantage of Tier 2, with 45 percent of its work force now at the lower-cost entry-level wage.

Williams: Seeks to bridge gap in pay

Less onerous

The Canadian approach to entry-level compensation is less draconian and has helped to spur hiring at Canadian auto plants, said Jim Stanford, economist for Unifor, the successor union to the Canadian Auto Workers.

Under the program, new hires get on a 10-year escalator to full pay, which at Oakville stands at $34.04 Canadian ($27.92 U.S.) an hour. In the first year, workers earn 60 percent of full pay or $20.39 Canadian ($16.72). By year four, it is 70 percent. By year seven, it's 80 percent. And it reaches 90 percent in year nine.

During Detroit 3 negotiations, the Canadian union in 2012 upped the "grow-in" period from six years to the current 10 years to try to preserve jobs, Stanford said. It has worked to some degree.

Since the contract, the Detroit 3 has hired about 2,400 entry-level workers in Canada. That group now represents slightly more than 10 percent of the total Detroit 3 work force in Canada, he said.

The biggest beneficiary is Ford. The carmaker has 1,600 entry-level workers at its Oakville plant. That's out of a total 5,000 at the plant, said Dave Thomas, president of Unifor Local 707 representing workers there.

Oakville assembles the all-new Ford Edge crossover, the Ford Flex and the Lincoln MKT. The plant will soon begin building the new Lincoln MKX.

Happy hire

Little is one of those hires. He said he was thrilled to get the job after spending the summer earning $12 an hour stripping seats out of commercial aircraft at a company in Windsor that refurbishes the planes.

Little, who has a two-year college degree in law enforcement, said the $20 an hour is solid for a young person. And it grows consistently with seniority to provide "more disposable income as the years go on." He assembles fuse boxes and other parts on the line.

Thomas said Unifor workers are closely watching the UAW contract talks. He said if the UAW and Detroit 3 alter their current Tier 2 system to reflect a Canadian-style grow-in, he'd like to see them shrink the period to full pay from 10 years to at least eight years. That would give Unifor, which negotiates its contracts a year after the UAW talks, incentive to push for the same time frame, he said.

Stanford said grow-ins are hardly unique to the auto industry. For years, airline workers in Canada have had similar steps to full pay. In the United States, many schools have that system for teachers.

CAR's Dziczek said the Canadian union's approach offers a path for resolving a Tier 2 problem that will make the upcoming UAW negotiations difficult. For their part, the Detroit 3 want no caps on the number of entry-level workers they can hire.

Come September, the Detroit 3 will all be subject to about a 25 percent cap on total Tier 2 employees in their work forces unless they change something in the next contracts, she said.

So addressing Tier 2 is unavoidable in the talks, Dziczek said. "They are going to have to do something."

Tales of Tier 2
The Detroit 3 have different approaches to paying entry-level workers in the U.S. and Canada.
U.S.: Entry-level UAW workers are paid roughly half the wages and benefits of veteran workers and have no path to eventually earn as much as older-seniority peers.
Canada: Hires represented by Unifor (successor to the CAW) start at 60% of the maximum wages of legacy co-workers but are put on a 10-year ladder to "grow into" top wages over that time.
You can reach David Barkholz at dbarkholz@crain.com -- Follow David on Twitter: @barkholzatan

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