Two Tiers, Slipping Into One

R ICK DOTY is a 30-year veteran of Caterpillar, the big tractor and earth-moving equipment manufacturer. He is paid $23.51 an hour as a machinist, and he receives additional benefits worth almost as much. That sets him far above newly hired workers consigned to a much lower wage scale.
To these fellow workers, Mr. Doty, who is also a local union leader, struggles to justify an inequality that he helped to negotiate.
"I remind them they are making more now than they were before they came to Cat," said Mr. Doty, who spends part of his day at the one-story union hall of United Automobile Workers Local 974 arguing that $12 to $13 an hour is good pay here. "And I assure them that five years down the road, when the present contract expires, we in the union are going to improve their lot in life."
That does not seem likely. After more than a decade of failed strikes and job actions — mainly in Illinois, where Caterpillar has its biggest factories — the U.A.W. reluctantly accepted a two-tier contract that provides for significantly lower wages and benefits for newly hired employees. The new second tier is as much as $20 an hour below the cost of employing Mr. Doty, 50, and a dwindling band of other veterans.
As older workers depart, at Caterpillar and at other companies, the longstanding wage advantage that manufacturing workers enjoy over their counterparts in services or construction is shrinking fast. The trade-off is the promise of a manufacturing revival at long last in the old Rust Belt, as new hires come aboard at much lower labor costs.
"What we've done is reposition ourselves to actually grow employment in our Midwestern plants," said Jim Owens, Caterpillar's chief executive. "We finally have a labor cost that is viable."
Caterpillar is adding a significant chapter to the labor cost-cutting that is widespread in America, particularly at old-line manufacturing companies. Until recently, cutbacks in the wages and benefits of hourly workers were limited mostly to money-losing companies: failing steel mills, for example, and struggling airlines. They have said that their survival was at stake.
Now, however, even healthy and highly profitable companies like Caterpillar are engaging in the practice, and as they do so, the longstanding presumption that factory workers at successful companies can achieve a secure, relatively prosperous middle-class life for themselves and their families is evaporating.
"Caterpillar is a powerful symbol of this process," said Harley Shaiken, a labor economist at the University of California, Berkeley. "It dominates its field. It is one of America's largest exporters, and it is very profitable. If there ever was a company that could bring back the social contract of the mid-20th century, it is Caterpillar. But it chooses not to."
AS Caterpillar's managers see it, they have no choice. "There is a balance that must be struck between being competitive and being middle class," said Douglas R. Oberhelman, a group president. Although Caterpillar's factories are among the most productive in the world, the managers argue that the company cannot afford to be more generous simply because it is doing well right now.
"You could say that in good times you could afford a different kind of package and in bad times you couldn't," said Christopher E. Glynn, the director of corporate labor relations. "The real question is: What's competitive? And our target is competitiveness."
The new contract reflects the company's success in imposing a "market competitive" pay scale; that is, wages and benefits that attract enough qualified workers by being slightly better than the packages offered by others in each community or region where Caterpillar has operations.
In the Midwest market, the competitive wage-and-benefit package is about $23 an hour, on average, Mr. Glynn says. Caterpillar's package for new hires in the U.A.W. contract ratified 13 months ago is pegged above that, at $28 an hour, which includes about $9 an hour in benefits.
Only the most skilled workers in the new lower tier — electricians and machinists, for example — make more than $20 an hour, or $41,000 a year, while in the gradually expiring upper tier, everyone does, even unskilled laborers and shop helpers.