Two tier wages

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Wage systems have long been a source of concern in many organizations. Employees of every company are very vulnerable to compensation structures and any inequalities in salary. Dissatisfaction with the method of payment has resulted in instances of labor unrest and protests. Several concepts of two-tier pay have been proposed, but they all aim to clarify the same thing. Vlasic (2011) distinguishes two-tier salaries as a monetary structure in which people doing the same job are paid differently. It has only been improved from the traditional system as shown in the case of a Roman Emperor Macrinus Opellius who cut the wages of new recruits when he needed to expand the size of his army but at a lower cost. It exposed them to the same battlefield risks as the veteran soldiers despite being paid differently.

Organizational Staff Implications of Two –Tier Wages

The introduction of two-tier wages brought about many effects in the organizations, both positive and adverse. According to Bentolila (2012), it marked the birth of most of the labor problems that organizations deal with year after year. There is however a group of thought that feels that two-tier wages were a significant development to help motivate hard working workers in the organizations. The following are the implications of two-tier wages on the organizational staff.

It leads to unrest and protests. The employees who receive lesser pay express their dissatisfaction through strikes and protests. Such occurrences end up disrupting the organization’s operations.

It increases workers' migration from one job to another. The workers prefer to look for other employment opportunities instead of being paid less than other people with the same qualifications. This movement creates labor gaps in the organizations.

It destroys the relationship between staff members in the same organization. There are always differences between those who receive a higher pay and those who get a lesser one.

It demotivates the workers. A good pay motivates the workers to become more productive in the delivery of their services. Two-tier wages demoralizes the affected parties, and they may become reluctant in putting any efforts to achieve the company’s objectives.

It motivates hardworking staff. An organization may decide to give some employees a higher pay than their colleagues as a reward for their hard work.

Challenges that two-tier wages pose to the organizations

Despite reducing the cost of labor expenses that organizations incur, a two-tier wage system has its challenges. Centeno and Novo (2012) explain that it leads to an interconnected chain of problems that end up retarding the efficiency of the enterprises. They affect the employees, the management and finally the whole organization. The challenges that two-tier wages pose to the organizations include:

Two-tier wages are quite unfair on the part of the employees. Paying people who do the same work differently portrays obvious injustice.

It is expensive. Boeri (2015) explains that it is ironical that employers think that this system reduces the cost while it’s very expensive. The organizations incur training and recruitment expenses now and then as their workers migrate to other jobs out of dissatisfaction.

Union problems. It weakens the strength of collective bargaining since highly paid workers don’t see the need for negotiations to get better wages.

The advantages and disadvantages of two-tier wages


They help in short-term reduction of costs

They weaken the union’s demands on the organizations by reducing their collective bargaining power.

The short-term reduction costs could lead to significant reduction of cost of labor in the long-run. It makes the organizations more efficient.


They slow down the decision-making process as coordinating a divided labor force is quite challenging. A lot of time is lost in the process.

Two-tier wages lead to discontentment in the workers which may demotivate them from being devoted and committed.

They weaken the cohesiveness of the workers’ union.

They bring about the problem of inequality.

Current status and future validity of the two-tier wages

The prevailing economic conditions influence some of the major decisions undertaken by the stakeholders. It becomes understandable when the management decides to cut their staff or reduce their wages. McPake (2011) explain that it is because they are striving to cope with the harsh economic conditions while maintaining their level of productivity. The future of two-tier wages remains uncertain even though economists predict that many organizations will continue implementing it. They don’t seem very viable in the future. The unsustainability of these wage scales might hinder their fruitfulness. As companies continue spending more on recruitment and training, they will realize that it was expensive than they thought. It may appear beneficial in the short-run, but it could lead to fatal consequences in the future. Its viability is therefore not guaranteed.

Recommendations to solve the problems associated with two-tier wages

Boeri (2015) argues that instead of totally dismissing the two-tier wage system, it would be better if the management learned how to improve it so as to be convenient for all the parties involved. Since it is not entirely evil, making some relevant changes would be quite helpful. The following are recommendations that have been proposed to make the two-tier wages more effective.

Adopt a straight wage cut for all the employees. It would promote fairness.

Instead of forcefully imposing new wages on employees, it is wise to negotiate with them on the starting rates that they would prefer. It would help reduce the impact of their reaction towards such an imposition.

The labor unions should be more aggressive in fighting for the rights of their members. They should push the government to set proper laws concerning wage cuts.

Where the disagreements persist, the organizations can consider abolishing the system entirely.

With an implementation of these recommendations, the system will become more efficient, and all the stakeholders will be contented. Such a harmony would help the organizations grow and increase their efficiency. It will also help to foster a sense of equality among workers thereby solving the problems of division, unrests, and migration from one job to another.


Bentolila, S., Cahuc, P., Dolado, J. J., & Le Barbanchon, T. (2012). Two‐tier labour markets in the Great Recession: France versus Spain. The Economic Journal, 122(562), F155-F187.

Boeri, T. (2015). Perverse effects of two-tier wage bargaining structures. IZA World of Labor.

Centeno, M., & Novo, Á. A. (2012). Excess worker turnover and fixed-term contracts: Causal evidence in a two-tier system. Labour Economics, 19(3), 320-328.

McPake, B., Hongoro, C., & Russo, G. (2011). Two-tier charging in Maputo Central Hospital: Costs, revenues and effects on equity of access to hospital services. BMC health services research, 11(1), 143.

Vlasic, B. (2011). Detroit sets its future on a foundation of two-tier wages. The New York Times.

December 28, 2022

Economics Life


Workforce Management Work

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Organization Employee Labor

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