Detroit Sets Future on Two-Tier Wages; That Could Be Part of the American Manufacturing Renaissance

DETROIT (NY TIMES) — "They are a cornerstone of Chrysler’s unlikely comeback: 900 employees turning out a Jeep Grand Cherokee sport utility vehicle every 48 seconds of the working day at an assembly plant here.  Nothing distinguishes them from other workers at the Jefferson North plant, except their paychecks. The newest workers earn about $14 an hour; longtime employees earn double that. 

With the economy slumping and job creation once again a pressing issue in the White House and Congress, the advent of a two-tier wage system in Detroit is spiking employment for one of the country’s most important manufacturing industries. The new jobs, which are seen as long term, are being watched closely by economists, executives in other industries and Washington policy makers eager to increase employment in manufacturing and other areas.

What was once seen as a desperate move to prop up the struggling auto industry is now considered an integral part of its future. The demand for $14-an-hour manufacturing jobs is providing Detroit’s Big Three automakers with a ready pool of eager new employees. Last year, Chrysler was flooded with inquiries about the jobs here. It froze the list after receiving 10,000 applications."

MP: The two-tier wages are definitely one factor in the revival of U.S. automotive jobs, and this is reflected in the large gains in manufacturing employment in states like Michigan (see chart above).  Over the last two years, manufacturing jobs in Michigan have increased by 52,000 to more 500,000.  That's the largest two-year job gain since the the mid-1990s, and reverses a downward trend in Michigan manufacturing employment that started in 2000 when there were more than 900,000 manufacturing jobs in the state.   

With the two-tier wage structure, it's likely that the Big Three will continue to expand domestic vehicle production, now that the wage costs are competitive with non-union foreign transplants like Toyota and Honda, and even increasingly competitive versus production in Mexico and other overseas locations.  Increased automotive manufacturing in the U.S. will likely be one part of the general renaissance of American manufacturing predicted by the Boston Consulting Group, as the wage gap with low-wage countries like China starts to shrink, and eventually disappears, adjusted for productivity, transportation and quality.  The two-tier wage scale for autoworkers provides one example of why the wage gap with China, Mexico and other offshore locations is shrinking. 

One point: If Chrysler is receiving 10,000 applications for jobs at the lower-tier $14 per hour wage, that's one indication that $14 per hour is still too high.  That is, Chrysler could offer to pay less than $14, and still have an excess supply of workers.