Ford Motor Co. F 0.91% will announce Tuesday it is adding a second shift at its Chicago assembly plant, creating 1,200 jobs and enabling the company for the first time to hire some new union workers at significantly reduced wages.

The contracts that Ford, General Motors Co. and Chrysler Group LLC signed in 2007 allow the auto makers to fill jobs vacated by older workers who leave or retire with new hires earning a little more than $14 an hour on average—about half what current workers received when they started. Newer workers also get reduced benefits.

The new "second tier" wage was a big concession for the United Auto Workers union, whose workers have enjoyed some of the highest manufacturing wages in the world. It agreed to accept reduced pay for newly hired workers in an effort to help make the Detroit Three more competitive with foreign car makers that use nonunion labor in their U.S. plants.

GM and Chrysler hired some workers at the reduced wage but laid off all or most of them when the companies slashed jobs as the recession and downturn in auto sales deepened. Ford never hired lower-wage union workers.

But with sales now showing signs of recovery, both the Big Three and foreign car makers are increasing production and adding factory jobs.

Hiring a second shift of workers at Ford's Chicago plant should trigger the hiring of entry-level workers, said Jim Tetreault, Ford's vice president for North America manufacturing, though he declined to estimate how many.

Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Mich., said he suspects Ford will be able to hire a few hundred workers at the lower wage, and possibly as many as 600. Even a few hundred would improve the economics of the Chicago plant. Besides the lower wage, new workers also get 401(k) accounts for retirement instead of pension plans that Ford is obligated to pay out for years.

It will still probably take years for Ford and the other Detroit auto makers to bring their total labor costs down to the level of their foreign competitors, Mr. McAlinden said. Even with recent concessions, an hour of union labor costs GM about $59, including wages and the cost of all benefits, he estimated.

The gap can be closed only if GM does "mass hiring of entry-level workers," Mr. McAlinden said, adding he doesn't expect that to happen until at least after 2015 based on U.S. production estimates through then.

At Ford, the contract with the UAW limits the number of lower-wage workers to 20% of the company's total work force. Ford also must see how many current but laid-off workers will apply for jobs in Chicago. About 1,000 who will be idled at Ford's Louisville, Ky., plant and 600 others who were idled but remain on the payroll will be first in line for the Chicago jobs.

It is unlikely all of the Chicago jobs will be filled by those workers because some will opt not to move. The Louisville plant also is supposed to reopen next year and will recall many workers.

"There will be new people hired at Ford," said Bob King, the UAW's vice president in charge of relations with the car maker. Mr. King is the union leadership's nominee to succeed UAW President Ron Gettelfinger.

GM has no plans to hire workers at the lower-tier wages this year, said spokeswoman Sherrie Childers Arb. The company still has about 6,500 laid-off workers who have the right to take jobs at existing wages as they open up, she said.

GM expects the number of its workers on indefinite layoff to fall when the auto maker adds a third shift at its Lansing Delta Township plan in Michigan and Fort Wayne factory in Indiana, she added.

Chrysler has "several hundred" laid-off workers who have the right to jobs, according to a person familiar with the matter.

Ford's Chicago plant builds two large sedans, the Ford Taurus and Lincoln MKS. The second shift will be added to produce a redesigned Ford Explorer sport-utility vehicle later this year.

Ford plans to spend $400 million to ready the Chicago plant for SUVs. Ford now builds the Explorer in Louisville but that factory will be converted to small-car production next year.

Write to Matthew Dolan at matthew.dolan@wsj.com