Wage Systems: Concession Bargaining and Two-Tier System - Essay Example

Nowadays organizations very often have to chose a wage system for a new collective agreement with employees. Despite of the fact that companies usually study experience of other market participants, they also handle their own research in pros and cons of this or that wage system. In this essay I will compare and contrast two wage systems: concession bargaining and two-tier system. I have chosen wage determinants as measures for comparison of the systems. I hope that such analysis will be relatively full to show strong and weak sides of both systems. Many factors can be identified as wage determinants. They can be selected in the following groups: economic, social, phycological and institutional. In this essay I will stick to the economic determinants: "influence of a wage system on a company's ability to pay wage; influence of a wage system on a company's willingness to pay wage; attitude of employees to a wage system." (W. P. Reuther, 55-76) Measuring two-tier system and concession system using the first etalon, a company's ability to pay, I must say that these two systems have different assignation. The concession bargaining system was widely used in 1980s and trade unions often agreed with wage cuts because companies were not able to pay full wage and at the same time wanted to keep their employees, as it is written in the review of the Organisation for Economic Co-operation and Development (OECD) (1997): "The concession bargaining which has occured in several years is an illustration of the recognition by both firms and unions of the link between costs, and thus prices, and output and employment" (http://www.oecd.org/dataoecd/19/60/2080431.pdf) . The concession system lost its popularity and influence in 90s when unions understood that company's were again able to pay then they did. The two-tier wage system appeared to reconcile management and employees in a struggle for higher salary, it sacrificed new employees in order to make happy experienced employees. That was done to keep anticipated productivity. "The two-tier structure permits hiring of new workers at significantly lower wages and benefits, compared to those of the regular work force. It will be worth countless millions of dollars to employers in coming years." (http://www.laboreducator.org/twotierpay.pdf) Thus companies' management benefited as wage increase was offset by rising level of productivity and at the same time newcomers didn't receive equal payments. So the concession system and the two-tier system are assigned for different situations. The concession system can help to rise general company's ability to pay", while the two-tier system is primarily designed to meet expectations of experienced employees. The willingness to pay is also an important factor for comparison of the two-tier and concession systems. "Except in the most extraordinary circumstances, there is no acceptable reason for a union to bargain concessions. In the case of a business that is profitable, there is absolutely no reason for concession bargaining. The results of concession bargaining over the last two decades should stand as proof that concessions do not benefit workers." (http://www.ufcw.net/articles/Toolkit/concession_bargaining-01.html) The concession system doesn't enforce the willingness of a company management to pay as it put restrictions on level of wages.The two-tier system stimulates management to attract experienced employees on the company's side in the bargaining process with new employees, thus this system increases a company's the willingness to pay. Though the willingness is largely a measure of equal distribution and fair competing process in the marketplace. The concession system grants to a company a chance to determine a level of wage that will be considered fair, thus decreasing level of employees' participation in distribution of a company's income. The two-tier system controls fair distribution only for experienced workers while newcomers are treated unfairly.) Although employers have to track wage market in terms of identifying comparable wage rates for their industry, as low salary for newcomers may restrain surge of fresh blood" to a company. From an managerial point of view the willingness to provide certain wage level can be identified as an amount of money required to hire and keep the needed quality of employees. It is not very strange that the concession and two tier systems have different levels of employee acceptance. The concession system covers all employees of an industry or company, reducing their earnings, while the two-tier system confine only small group of employees who enter an industry or join company. Though there are different approaches to the systems from the side of trade unions. If the concession system is considered as a forced action to save rate of employment and social security then the two-tier system is considered as unfair one. Also unions try to withstand the two-tier system because it ruins main principle of trade unions all members gets equal payments". As Harry Kelber, a professor of labor studies, wrote: "It turns the new hires into second-class citizens within the union, breeding dissatisfaction and division. It makes it more difficult to foster unity and solidarity. Moreover, employers, in addition to drastically cutting their labor costs, can use their hiring policies to weaken the union."(http://www3.telus.net/exlibris/TwoTiers_a_Major_Concession.htm). Ideally, such factors should be basis for a company's management when choosing a wage system. Conclusion I've decided to stay with the above-mentioned factors because type of a wage system have a great impact on a company's ability to pay rate and consequently on willingness of a company management to implement employee' friendly changes in a compensation system. Also a wage system is one of the corner stones in employer-employee" relations therefore its acceptance from the employee side is very important factor In oder to implement this or that wage system businesses shall have the ability to pay wages, the willingness to pay and take into account attitude of labor force to a wage system. Of course usually organizations are guided by the market forces in their choice of a wage system: as we can see both two-tier and concession wage systems are suitable for overcoming economic problems in a short term. The ability to pay is a major factor for comparison as it greatly influence company while choosing a wage system. According to this factor and to others I can say that the concession system is more fair from the social pint of view than the two-tier one because it is usually implemented as an forced and temporary action. Though the two-tier system is an advance to future labor relations and can't be neglected despite of its unfairness. References 1. http://www3.telus.net/exlibris/TwoTiers_a_Major_Concession.htm 2. http://www.oecd.org/dataoecd/19/60/2080431.pdf 3. http://www.laboreducator.org/twotierpay.pdf 4. http://www.ufcw.net/articles/Toolkit/concession_bargaining-01.html 5. W. P. Reuther, Purchasing Power for Prosperity: The Case of the General Motors Workers for Maintaining Take-Home Pay (Detroit: UAW-CIO, General Motors Department, 1945), pp. 55-76. Read More