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A two-tier wage system roiled the auto industry. Workers today say no way

Nurses at Kaiser Permanente and cereal workers at Kellogg are among those protesting their companies' proposals for a two-tier wage system under which new hires would earn less for the same work.

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Workers from a Kellogg cereal plant picket along the main rail lines leading into the facility on Oct. 6 in Omaha, Neb. Workers have gone on strike after a breakdown in contract talks with company management. // AP, Grant Schulte

The workers behind Frosted Flakes, Froot Loops and Raisin Bran are striking for a better deal — for themselves and for their future co-workers.

At Kellogg cereal plants in Michigan, Tennessee, Pennsylvania and Nebraska, 1,400 workers have been on strike since Oct. 5. Among their complaints: Kellogg's proposal of a two-tier system under which workers can eventually earn the same wages as legacy workers but will never have the same health care or retirement benefits. They say Kellogg can afford good wages and benefits for everyone, given the profits it has raked in throughout the pandemic. Kellogg counters that its workers enjoy industry-leading pay and benefits and that the proposed contract maintains that.

At John Deere, which already has a two-tier retirement system in place, union workers resoundingly rejected a contract that would have further eroded retirement benefits for anyone hired after Nov. 1. More than 10,000 John Deere workers are on strike across the Midwest, demanding a better deal for all workers.

On the West Coast, nurses and other health care workers at Kaiser Permanente are also decrying a proposed two-tier system under which new hires would be paid wages significantly under current levels. They too are pointing to their employer's profits during the pandemic to argue that this is no time to shortchange workers.

Two-tier wage systems are not new. They proliferated in the 1980s and made a comeback in the Great Recession when unemployment was high. In tough times, companies say moving new hires to a lower pay scale and scaling back benefits is critical to staying afloat.

But at a time when companies are profitable and workers are in high demand, two-tier systems are a much harder sell. Workers simply see them as a union-busting tactic that will hurt not just future employees but their own livelihoods as well.

Detroit automakers used a two-tier system to gain back competitiveness

When a two-tier wage and benefit structure was adopted by Ford, General Motors and Chrysler in 2007, it was hailed by auto executives as "revolutionary" and "a major step forward."

Union workers, represented by United Auto Workers, voted to approve the change, which did not impact their wages or generous benefit packages but dramatically slashed those for new hires.

At the time, it was seen as a necessity.

"The survival of the industry was at stake," says Kristin Dziczek, senior vice president of research at the Center for Automotive Research.

But with the two-tier system came morale issues and other problems. Both the car companies and the unions said it created an unhealthy environment of two classes of workers doing the same job. Newer workers had no path to the top wages paid to veteran employees. They felt ripped off.

In 2015, Fiat Chrysler CEO Sergio Marchionne called it unsustainable. "We need to design a career path for people who come into this business that tells them that if they work hard they can get there," he said.

Eventually, two-tier wages were negotiated out of the contracts for production-floor workers.

Health care workers say under a two-tier system, patient care could suffer

In response to Kaiser's proposed two-tier system and other changes to wages and benefits, the unions representing more than 20,000 Kaiser employees in Southern California and Oregon are threatening to strike, though no date has yet been set.

Under Kaiser's proposal, people hired after Jan. 1, 2023, would make 26% less than current levels. The company said the change will help it "address future costs" while still ensuring that new employees are paid above-market wages on average.

But workers remain unconvinced.

"Especially after the last 18 months, it leaves me with a bad taste in my mouth," says Alaa Abou-Arab, an occupational therapist with Kaiser in Los Angeles, who works in the intensive care unit helping COVID-19 patients regain the ability to do basic tasks such as going to the bathroom.

He doesn't want to think about what it would feel like to work alongside someone making less money despite having the same job, the same amount of training and probably the same amount of student loans, he says.

Abou-Arab is afraid that lower wages will make it harder for Kaiser to hire and retain good workers and that patient care could suffer. Most Kaiser employees are also Kaiser patients, he says.

"My son was born at Kaiser Permanente. My wife delivered there. So we're all in the same boat. There's no in-between," he says.

Clarification: An earlier version of this story said that under Kellogg's proposed two-tier system, new and recent hires would earn lower wages. Under the proposal, those workers can eventually earn the same wages as veteran legacy workers but won't receive the same health care and retirement benefits.

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