Two-tie Wage System

Two-tieWage System

Two-tieWage System

Thereare different types of the wage system, which are viewed fromdifferent perspectives by employees and employers. Two-tier is one ofthe wage system in which employers give one group of employees ahigher compensation and employment benefits than the other (Walker,1987). This system of compensation is mainly adopted by employers whowish to compensate senior, more productive, and experienced workers.This paper addresses the advisability of the two-tier wage systemfrom the perspectives of employer and employees.

Employeesget two major benefits by adopting the two-tier wage system. First,employers manage to put in place a pay for performance system inwhich more productive and experienced employees receive a better pay(Garibaldi,2006). Thisincreases employers’ ability to retain experienced and moreproductive workers. Secondly, employers recruit new and inexperiencedworkers without a significant increase in wage cost. However, thetwo-tier system increases the turnover of junior employees and lackof motivation among lowest paid workers, which in turn reduces theirproductivity.

Althoughthe most experienced and productive workers may feel satisfied withthe two-tier wage system, it has negative effects on the junior andnewly employed workers who are the majority in many organizations.The system reduces the satisfaction of the low paid employees, whichnegates the anticipated benefits of the low wage bill (UnitedElectrical, 2014). Inaddition, the low paid employees see the two-tier system as an unfairsystem that violates the notion of equal pay for an equivalent pieceof work.

Inconclusion, the two-tier wage system results in short-term benefitsto employers, but subjects them to more risks in the long-run.Employers reduce the wage bill, but the system increases the turnoverof the junior members of staff and reduces productivity of those whoremain in the firm. Employees on, on the hand, perceive the system indifferent ways. The senior workers may prefer the system, but thejunior ones view it as an unfair system. Therefore, employers shouldadopt compensation systems that facilitate wages that arecommensurate the employees’ productivity and promote equity.


Garibaldi,P. (2006). PersonnelEconomics in Imperfect Labor Markets.Oxford, O.k.: Oxford University Press.

UnitedElectrical (2014). Two-tierwage and benefit system-equal work for less pay.United Electrical. Pittsburgh, PA:

Walker,J. (1987). Twotier wages system.Kingston, ON: Queen’s University.