Companies split labor with dual-pay scale. Two-tiered system cuts salary for newcomers, preserves it for veterans

Suddenly, it seems, splitting up the labor force is in vogue. Last month, truckers for major freight companies and Pan Am flight attendants tentatively agreed to two-tiered wage contracts. Now, United Airlines and its pilots are moving closer to a strike over the same issue.

``We feel that it's a terrible mistake,'' says James E. Waters, spokesman for the Air Line Pilots Association (ALPA) and captain of a Boeing 737 for United. ``A sad, bad joke.''

Essentially, a two-tiered system discriminates between old and new workers. Some companies are trying to save money by cutting back starting wages for new hires while preserving the pay of current employees.

It is too early to call the two-tiered concept a trend, many observers say, but it is a new and potentially troubling development in the collective-bargaining process.

``This is how unions adjust to the real world,'' says Murray Seeger, spokesman for the AFL-CIO, which takes no official position on two-tiered pay. But ``everybody understands it's a dangerous thing and that the damage must be limited.''

The current talks between United and its pilots illustrate some of the concerns employers and workers are wrestling with. The airline appears set for a strike over the issue. Meanwhile, the pilots have set a May 17 strike date if an agreement is not reached.

The argument in favor of a two-tiered wage scale is simple. Since deregulation, established carriers such as United have faced increasing competition from upstart, low-fare airlines. One ingredient to the newcomers' lower fares: they pay their workers less.

``We must have this to compete in a deregulated arena,'' says Chuck Novak, United's manager of corporate communications. United, whose pilots -- according to the company -- earn on average $91,200 plus $34,600 in fringe benefits, has proposed that starting pilots accept lower pay. Under the new scale, a starting second officer would receive $21,600 instead of the current $22,452. The tiered concept is accepted by the pilots, who are organized by the ALPA. But they disagree with the length of time it takes the lower tier to catch up with the other pilots. They have suggested five years, Captain Waters says. The airline's proposal has the lower tier catching up at the captain level -- a process that could take 20 years.

The distinction is important, says James Medoff, an economics professor at Harvard University, because contracts where there is no catch-up or a long delay before catch-up could pose severe problems for unions.

``We are adamantly opposed to a true two-tier system, where the lower tier never catches up,'' says John Mazor, a spokesman for ALPA, which represents 34,000 pilots. The lower-paid worker ``looks around and he realizes: `I'm not one of the employees. I'm a second-class citizen.' ''

American Airlines, for example, now has a permanent two-tier system, where new employees on average will only get about 50 percent compared with colleagues hired before the new contract.

``We're not married to the concept of a two-tier wage scale,'' says American spokesman Joe Stroop. ``It's strictly a means'' to remain competitive. And there have been problems with worker dissatisfaction, he adds. Currently, American and its pilots' union are talking about adjusting the wage scales.

In the short term, the two-tiered concept helps the company save on wages if it is expanding and adding new workers, Professor Medoff says. What is less clear are the long-term implications for companies that adopt the system.

``I think it's going to cause some problems ahead,'' says Bill Brown, a management professor at Rollins College and a management improvement consultant. ``I don't think you're going to get the productivity out of that [lower-paid] second tier of workers.''

``In the long term, it's neither good for industry or workers,'' adds Robert B. Reich, a professor of business and public policy at Harvard's Kennedy School of Government.

In Professor Reich's view, American basic industries are generally failing to adjust quickly enough to a more competitive environment.

``The two-tier system that we've developed is a symptom of our failure to adjust,'' he says. ``We prefer to cling to the past.''

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