A darker future for "Tier 2" workers

Original Reporting | Eric Kroh | Labor Unions

July 27, 2011 — At the beginning of most weeks, Nick Waun makes the five-hour drive from his three-bedroom house in suburban Lapeer, Michigan, about an hour north of Detroit, to a small apartment in Lordstown, Ohio, where he works as an assembler in a factory owned by General Motors Co. Some weeks he works on Saturday so it doesn’t make sense to make the trip back to Lapeer for the weekend.

Here’s what prompted the story

Two weeks ago, The New York Times ran an enthusiastic story on how GM was standing automaking “on its head” with a “radically revamped factory” for building a sub-compact car. The effort, it was said, is one “expected to be a breakthrough in establishing a new level of cooperation between Detroit and the United Automobile Workers.” The Orion, Michigan factory that is the site of the experiment “could become a model.”

The secret? Paying many union workers about half the usual wage. According to the article, “lower employment costs were critical to the decision to build the [new car] in Michigan.”

Entirely absent from the story was any examination of what it would mean for those auto workers who would be paid so much less than their counterparts. How much and how good of a middle-class life could they expect to enjoy? We decided to try to find out.

— Editor

Waun, 32, used to work at GM’s Orion assembly plant, located in Lake Orion, Michigan, about half an hour from his home in Lapeer. But then the Orion plant shut down in November 2009 to be reconfigured to produce the Chevrolet Sonic and Buick Verano compact cars. During that time, GM was required by the union contract to supplement Waun’s state unemployment benefits so that he received 80 percent of his normal wage.

In October 2010, Waun said, plant employees learned that according to the terms of a deal that their union, United Auto Workers (UAW), struck with GM to ensure that the Orion plant would resume production with the new models, 40 percent of union workers at the plant would be so-called “Tier 2” workers. These workers would earn a starting wage of around $14 per hour and progress to $16 an hour rather than earning the standard wage for all Tier 1 workers of $28 per hour. The 40 percent quota would be filled with new hires or by bumping down Tier 1 workers making the higher wage. Waun said that, as one of the last workers hired at the Tier 1 wage, he feared he would be forced to accept the lower wage if he wanted to go back to work at the Orion plant, so he accepted an offer to relocate to the Lordstown factory.

“It’s kind of a blessing to be able to make this wage,” Waun said. “That’s why I was willing to move out of state to try to keep it.” Waun is working on a campaign to persuade union leaders to fight to eliminate the two-tier wage structure during this year’s contract negotiations. The two-tier system was put in place back in 2007, approved by members, Waun said, on the premise that it was a temporary measure. Union members did not vote on the 40 percent level at the Orion plant.

One Tier 2 employee who works with Waun on the assembly line in Lordstown complained to him about the hassle of simply buying a new pair of eyeglasses. Because she did not have vision insurance, she had to pay out of pocket for the glasses and had to resort to a payday lender to come up with the money. Waun said Tier 2 workers are frequently “in a hole not being able to afford doing things that the top tier do. They dig themselves deeper into the pit in that way.”

Not a wage to keep a family out of poverty?

In Orion Township, where the Orion plant is located, median household income is around $80,000 according to the latest data from the U.S. Census Bureau. Based on a normal, 40-hour work week, a Tier 1 worker at the top $28 per hour wage makes $58,240 per year, about three-quarters of that median. In contrast, the top Tier 2 wage of $16 an hour yields only $33,280 per year, less than 40 percent of the median wage.

The Census Bureau in 2010 placed the poverty threshold for two parents living with two children at an annual income of $22,113. But Heidi Shierholz, a labor market economist at the Economic Policy Institute in Washington, said twice the poverty level is a more reasonable budget to meet what she called “bare-bones, month-to-month” expenses such as food, housing, transportation and childcare. By that reckoning, the Tier 2 wage at the Orion plant would not meet the needs of parents with two children (twice the poverty level for such a family is $44,226).

The difference between the two wage levels represents a huge hit in living standards, Shierholz said. For a family to be able to afford only the minimum expenses “adds huge economic insecurity,” Shierholz said. It could mean “you don’t have a cushion if you need to repair your car. Any kind of savings…putting away for retirement, putting away for kids’ education, putting away for any sort of getaway for vacation, forget about it.”

“Man, that culture is just gone”

Stacey Kemp, 53, is a former GM employee who retired after working for the company for 30 years (six of them at Delphi Corp., the parts supplier spun off from GM). Kemp lives in New Lothrop, Michigan, about an hour-and-a-half outside of Detroit with her husband, a 24-year GM employee who works at a plant in nearby Flint.

Kemp said the best example of the kind of life that working at GM for full union wages has been able to provide her and her family has to do with cars.

“If my car breaks down I can afford to get it fixed without too much trouble and without having to eat peanut-butter-and-jelly sandwiches for the rest of the week,” Kemp said. “If somebody on the second tier’s car breaks down, that’s a financial catastrophe.

“To me that is the difference between middle class and working class,” she continued. “Middle-class people can afford to get their car fixed without major financial sacrifices in other areas.”

Kemp said she started out at GM at an hourly wage of $6.07 in 1977 and by the time she retired in 2007 she was making $27 an hour, the full union wage at the time. GM footed the bill for her health insurance while she was working. Kemp earns about $2,700 a month on her GM pension, she said, and about $70 to $100 of that is deducted to pay her health insurance premiums. Her husband, a Tier 1 employee, makes the full wage of $28.

Kemp and her husband raised three children on their two salaries. She said they always had a roof over their heads, they had a pool in the backyard, she could take her kids to the dentist if she needed to, and the family was able to go away on vacations every once in a while. She remembers taking her children to amusement parks and on several camping trips.

Kemp’s two daughters were able to go to college with what she says was significant financial assistance from her and her husband, and GM even pitched in $1,200 per year for their tuition, although she said the company no longer provides that benefit.

Kemp said she still subsidizes her children’s expenses in many ways even though they have all moved out of the house. “We help our kids quite a bit,” she said. None of them can find a full-time job, and she fears for their financial safety, though she said she is more concerned about her grandchildren. “Who’s going to help them?” she asked.

On a recent trip to the Detroit Institute of Arts, Kemp said she welled up in front of a mural by Diego Rivera depicting an assembly line. “Man, that culture is just gone,” she said. “My children will never experience that kind of security and that kind of opportunity.”

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In that situation, families will try to earn extra money any way they can, either by working longer hours or by taking on additional jobs, Shierholz said. But in the current job climate finding additional work is difficult, she said. “The odds are stacked against families being able to make this up in an economic environment like this.”

“You don’t have a cushion if you need to repair your car. Any kind of savings…putting away for retirement, putting away for kids’ education, putting away for any sort of getaway for vacation, forget about it.” — Heidi Shierholz, labor market economist, on the practical impact of making Tier 2 wages

Dorothy Barrick, group manager and financial counselor at GreenPath Debt Solutions in Farmington Hills, Michigan, agreed that a worker in the area with an annual income of $30,000 would have to cut back on non-essential expenses. She said it would mean doing away with cable television and using an antenna instead; going to the library to use the Internet; shopping at Salvation Army and Goodwill for second-hand clothes; and driving a car with a bad muffler or worn-out tires.

What kind of house…and where?

The Orion plant is located in Orion Township. According to the Census Bureau, the median price of an owner-occupied home there is just over $232,000, based on 2005 to 2009 data. Jerry Wuebben, a realtor with Century 21 Sakmar & Associates in Rochester, Michigan, noted that house prices have declined since the financial crisis began in 2008, but that there is a great difference between the kind of houses that Tier 1 workers are able to afford as compared with those affordable to Tier 2 workers.

Jay Dubrinsky, a mortgage banker at Hall Financial in Bloomfield Hills, Michigan, said the most expensive house a Tier 2 worker could afford would probably be around $85,000. But he or she likely could not afford the 20 percent down payment for a conventional mortgage — $17,000 in the case of an $85,000 house. Some workers might qualify for a mortgage insured by the Federal Housing Administration (which requires a down payment of only 3.5 percent), but blemishes on one’s credit history — a not-uncommon by-product of a period of financial stress — might make lenders decide that one was not creditworthy.

Will pay for tier 2 workers lag forever?

Tier 2 workers earn about $15 per hour after one year of employment, according to a GM spokesman. After two years, they earn about $16 per hour.

At that point, they have hit the pay ceiling — they have progressed to the top rate available.

GM has no plans to hire any workers at Tier 1 wages, the spokesman said. The only way for a Tier 2 worker to move up to the higher tier is to replace a Tier 1 worker, he said.

At the moment, that upward mobility remains only a theoretical possibility. While under existing labor agreements, the percentage of Tier 2 workers is ultimately supposed to be capped at between 20 and 25 percent after 2015, GM is permitted to hire an unlimited numbers of Tier 2 workers until then.

And, there is no cap on the percentage of Tier 2 workers that can be employed at individual plants. Finally, Tier 1 workers cannot transfer to the Orion plant unless they previously worked at the plant and retained recall rights.

Nick Waun said the agreement sets the stage for GM to eventually transition all jobs at the plant to Tier 2 wages. He feared the plant would become a model for producing cars with low labors costs and the pay structure would be replicated at other plants. Remapping Debate asked GM representatives whether it was the company’s goal to move the entire Orion plant to Tier 2 wages, but did not receive an answer.

Even coming up with approximately $3,000 (the down payment on a FHA-backed loan for an $85,000 house), Shierholz said, could be a struggle. “Imagine the scenario where you have the single parent who has that income and has to pay for childcare, transportation, their existing housing costs, food,” she said. “They’re just going to be paycheck to paycheck.”

On the other hand, a Tier 1 worker can afford a very different home, probably one selling for $175,000, according to Dubrinsky. Wuebben said that even a $200,000 house on lakefront property would be within reach of an employee making the higher wage. “They would be getting some pretty nice housing,” Wuebben said.

A search of listings on area real estate websites turned up a bungalow listed at $86,000 with three bedrooms and one bathroom situated on a lot with a small yard in the village of Lake Orion. A separate listing featured a home priced at $189,900 that was located on Lake Orion and had three bedrooms, two bathrooms, a large porch, and a pier extending into the lake (see photos on last page).

Barrick said a Tier 2 worker might choose instead to try to stretch his income by settling in a less expensive area, such as the city of Pontiac, Michigan, about a 15-minute drive south from the Orion plant.

Barrick characterized much of Pontiac as “concrete, and small patches of grass in backyards,” as opposed to Lake Orion’s lakes, public parks, and beaches. A starter house in Pontiac would likely be a two-bedroom on a small lot, she said. “In the city you’ve got your small, typically fenced-in yard and that’s it,” Barrick said. There are also fewer restaurants and businesses in Pontiac compared with Lake Orion, she said, and the public school system in Lake Orion has a better reputation.

According to data from the Michigan Department of Education, the Lake Orion community school district outperformed all but one of the surrounding school districts in math and reading proficiency based on the spring 2011 Michigan Merit Exam, a state assessment test for high school juniors. In Lake Orion, 72 percent of students met or exceeded expectations in math and 77 percent met or exceeded reading expectations. In the Waterford school district, the ratios were 40 percent for math and 60 percent for reading, while in the Pontiac City School District they were 6 percent for math and 18 for reading.

Financial instability

Waun said even the workers earning the higher wage at the GM plants feel financially unstable because they fear they will soon be forced to accept the lower wage. “A lot of us, and I hear this a lot, feel like we have a noose around our neck and we’re just waiting for the floor to drop out from underneath,” he said.

So far, no employees at the Orion plant have had to drop to the lower wage from the upper wage, according to Pat Sweeney, president of UAW Local 5960, which represents workers at the Orion plant.

Asked how he responded to complaints that the Tier 2 wage was insufficient, Sweeney said that those hired at the lower wage “weren’t forced to take the jobs.”

“A lot of us, and I hear this a lot, feel like we have a noose around our neck and we’re just waiting for the floor to drop out from underneath.” — Nick Waun, Tier 1 GM employee

Remapping Debate asked Mike Smith, a labor historian at Wayne State University in Detroit, about the similarity of Sweeney’s response to anti-labor justifications that employers historically used in opposition to a minimum wage and similar labor-protective measures. Smith said an attitude of “If they don’t like the job, they don’t have to take it” was especially prevalent in the manufacturing industry before the rise of organized labor when companies hired great numbers of workers with little or no skill. If someone passed over a job, there was someone else willing to take it. Several people interviewed by Remapping Debate said the employment situation in Michigan was so bad that most people would indeed jump at the opportunity to earn half the rate that UAW workers had historically gotten.

Smith said it was his opinion that the UAW’s concession to a two-tier wage system was a necessity, though he acknowledged it goes against 75 years of the union philosophy of equal pay for equal work.

Sweeney defended the union’s acceding to having 40 percent of the Orion workers at the second tier. It was necessary in order to have the subcompact cars produced at that plant rather than abroad, where labor costs are lower, he said.

The UAW struck the deal with GM in order to “create more jobs in the United States,” Sweeney said. “They brought this product in from Korea instead of building it there,” he said.

Autoworker Caravan, a group of UAW members advocating for an end to tiered wages (Waun is involved with the group), says on its website that the payment system divides the workforce and leaves newer workers resentful of older employees who are getting paid twice as much to do the same job. Group members also fear that allowing some workers to be paid less will lead to a wage war with competitors and drive rates down even further. Paying some workers “barely livable wages” is unacceptable when auto companies are making billions in profits, they say. GM made some $6 billion in income in 2010.

“The UAW should not be turning around now and trying to match the lower standards [of foreign auto makers], only to give Toyota more breathing room to lower their standards more,” Waun wrote in an email. “It’s a downward game that we just shouldn’t be playing.”

Remapping Debate asked Sweeney to respond to criticisms of the tiered wage system from Autoworker Caravan and other UAW members. What are the union’s long-term plans to deal with the downward pressure on wages? How can it justify paying workers significantly different wages for the same job? And shouldn’t union negotiators be pressing for higher wages now that automakers have returned to profitability?

Sweeney replied that he didn’t have time to respond to reporters’ questions and they would have to be referred to UAW International. An email sent to UAW International with the same inquiries was not returned.

Trying to make do

For now, Waun said he was trying to work his way through college because he could pay his tuition. He said he feared that if he got knocked down to a lower wage he would “be stuck working for General Motors for the rest of [his] life” because he wouldn’t be able to afford an education to widen his job prospects.

In addition to college tuition, Waun said the higher wage allowed him to afford a reliable car, whereas many Tier 2 workers he knows had to drive used foreign cars. He said he was also able to go on vacation every once in a while. Tier 2 workers, meanwhile, feel left out, Waun said.

“All the Tier 1 are talking about their trip to Disneyland or their hiking trip in Colorado, and [the Tier 2 workers are] just wondering how they’re going to be able to put enough gas in the car to get to work on Monday morning,” Waun said.

Barrick said clients of hers who used to drive to northern Michigan on vacation to take advantage of the state’s beaches are now, given the cost of gas, eliminating even those trips to cut back on expenses.

Waun, who is unmarried and has no children, said he hoped to start a family some day. But he worried that he wouldn’t be able to provide his children with the kind of life that his parents were able to afford. Waun said he was a fourth-generation auto worker, and that while his family wasn’t wealthy while he was growing up, he remembered “the family cottage up north, barbecues during the summer, snowmobiling during the winter.” As a teenager he had a computer, a full closet of clothes, and healthy meals to eat.

At $14 an hour, Waun worried, “I wouldn’t be able to provide the standard of living that I think children deserve.”

How much house can workers on different tiers buy in Lake Orion?

The house directly below, on the market for $86,000, is in the price range that a Tier 2 worker might afford (if able to get a mortgage).

The photos below are of a house on the market for $189,900, the range range affordable for a Tier 1 worker. The “Tier 1” house is larger, is advertised as newly remodeled…and is directly on the lake.

Photo credits: Patty Pascoe of Real Living John Burt Realty, Lake Orion, Michigan (top two photos); Jerry Khami of Hamilton Realty Group, Roseville, Michigan (bottom two photos).