Two-tier system

A two-tier system is a type of payroll system in which one group of workers receives lower wages and/or employee benefits than another.[1]

The two-tier system of wages is usually established for one of three reasons:

  • The employer wishes to better compensate more senior and ostensibly more experienced and productive workers without increasing overall wage costs.
  • The employer wishes to establish a pay for performance or merit pay wage scheme that compensates more productive employees without increasing overall wage costs.
  • The employer wishes to reduce overall wage costs by hiring new employees at a wage less than the wage of incumbent workers.[1][2]

A much less common system is the two-tier benefit system, which extends certain benefits to new employees only if they receive a promotion or are hired into the incumbent wage structure.[3][4][5]

That can be distinguished from traditional benefit structures, which permit employees to access a benefit, such a retirement pension or sabbatical leave, after they have achieved certain time-in-position levels.

Two-tier systems became more common in most industrialized economies in the late 1980s.[6][7] They are particularly attractive to companies with high rates of turnover for new hires, such as in retail, or with many high-wage, high-skilled employees about to retire.[8]

  1. ^ a b Sherman, Arthur W.; Bohlander, George W.; and Snell, Scott. Managing Human Sesources. Cincinnati, Ohio: South-Western College Pub., 1996, p. 379.
  2. ^ Garibaldi, Pietro. Personnel Economics in Imperfect Labour Markets. Oxford: Oxford University Press, 2006, p. 115; Symposium on the Social and Labour Consequences of Technological Developments, Deregulation and Privatization of Transport. Bert Essenberg, ed. Geneva: International Labour Organisation, 1999, p. 24.
  3. ^ Holley, William H.; Jennings, Kenneth M.; and Wolters, Roger S. The Labor Relations Process. Mason, Ohio: South-Western Cengage Learning, 2009, p. 303.
  4. ^ Cappelli, Peter. Employment Relationships: New Models of White-Collar Work. Cambridge, Massachusetts: Cambridge University Press, 2008, p. 194.
  5. ^ Cite error: The named reference Harrison42 was invoked but never defined (see the help page).
  6. ^ McConnell, Campbell R.; Brue, Stanley L.; and Macpherson, David A. Contemporary Labor Economics. Boston: McGraw-Hill, 1999, p. 350.
  7. ^ Saint-Paul, Gilles. Dual Labor Markets: A Macroeconomic Perspective. Cambridge, Massachusetts: MIT Press, 1996, p. 183.
  8. ^ Harrison, Bennett and Bluestone, Barry. The Great U-Turn: Corporate Restructuring and the Polarizing of America. New York: Basic Books, 1990, p. 43.