What is the primary purpose of implementing a two-tier wage system in companies?

The primary purpose of implementing a two-tier wage system is to reduce labor costs for new employees. This approach allows companies to differentiate between current employees and new hires by offering the latter lower wages or benefits. The two-tier system typically maintains higher compensation and benefits for long-serving employees while offering less favorable terms to new employees.

This strategy is often employed in industries facing competitive pressures, where labor costs are a significant factor in maintaining profitability. By managing wage scales in this manner, businesses can keep their overall labor expenses lower, which can be crucial for sustaining operations and investing in growth.

Implementing a two-tier system can also lead to some tensions within the workforce, as existing employees may feel their long-term service is being undervalued compared to the costs associated with hiring new staff. However, the clear focus of this system is to maintain a competitive edge by controlling costs, particularly concerning newer hires.