The story makes a good deal of sense if, in general, wages are set only partly by supply and demand, and partly by the employers-as-a-class's feelings of how much money people doing that sort of job ought to earn.
In this case production line workers were a relatively new thing, and Ford was helping to create a consensus about where they would fit in.
Part of the reason why simple supply and demand doesn't dictate a single level of wages is that there's a good deal of flexibility in what doing a job entails.
In this case it seems Ford was helping to decide that the workers would be skilled labourers: there'd be a training cost (what the article calls "a costly break-in period") and high enough wages to reduce turnover so as to amortise that cost.
The business about "character requirements" and visiting the employees' homes also looks like a conscious attempt to control where the workers fit in the class system.
The alternative would presumably have been to try to organise the production line to require less training, and accept the efficiency loss in exchange for the lower wage bill.
> In this case it seems Ford was helping to decide that the workers would be skilled labourers
When given a choice, employers would far prefer to commoditize their employees. It gives them far more power in the relationship and lowers their costs. Skilled workers are treated as such, not because employers want it, but because the circumstances don't give them a better choice.
> there'd be a training cost (what the article calls "a costly break-in period") and high enough wages to reduce turnover so as to amortise that cost.
This is exactly what the article says as well. Ford paid his employees very well to reduce turnover and its associated costs. Not because he was trying to create additional demand for his cars.
NB I have no reason to suppose the story is actually true. Very likely it isn't.
But the motivation the story claims Ford had does make sense. He was in a position to influence other employers' decisions by reputation, not just via the price mechanism.
If there's one equilibrium where factory workers in general end up as unskilled labourers, and another where they end up as skilled, the latter is better for Ford because of the products he happens to sell.
I don't think it would always be that cut and dry, especially today where there are other mechanisms of keeping workers loyal/minimizing their power (stock options with vesting schedules, non-competes in some states, etc) having a differentiated workforce that isn't a commodity your competitors could tap into could be better
I agree, employers like to reduce cost by acquiring loyalty and encourage workers to look negatively at a lack of loyalty.
For example complaints from management, "Hey, these job hoppers sure make the work harder." They could pay more as Ford did, but it's an attempt to color perceptions and purchase compliance (e.g. less turnover) at reduced cost.
Not sure why you were down voted, this is a very valid point.
I ran the numbers for our customer service department and made the case for higher wages- our turnover isn't extreme but it is still expensive. Running the numbers, if we paid $1.50 more per hour we'd be in the upper end of our market, and assuming turnover dropped by 50% we would be saving money.
Response from the CEO was essentially 'they aren't loyal enough'. To be blunt, I don't blame them for looking for better jobs, I wouldn't accept abuse from customers for the wage they are paying. Unfortunately, the CEO looks at it as a moral failing in those employees, vs. the fact that they aren't paid enough to give a shit. I lean libertarian, but it seems simple enough to me that paying people a decent wage can be good for the business. Asking for loyalty to a company is BS- I like my job, but the only reason I do it is that they pay me. I'm certainly not willing to volunteer to do this for free, and I wouldn't expect that the people manning customer support are any different.
Expecting loyalty is ridiculous- its stupid that capitalists expect their employees to not be financially-motivated. Simply said, who is really motivated to be loyal to a company for shit wages?
There are lots of things that contribute to enjoyable work. Giving people the feeling their time isn't worth anything is probably the best deterrent. Stuff like: being late to pick people up; having them show if there is nothing to do and have them sit and wait for 8 hours doing absolutely nothing; similarly, having people sit and wait after the work is done (Extra points if they also act as if they did you a huge favor!); shit tools and materials requiring a lot of extra work every day to save 10 euro; insufficient time to do a decent job; treating any kind of communication as disruptive.
In a call center you give people 30 sec to 2 min to recover after a bunch of calls. If you take that specific moment to complaint people don't know how fast to gtfo.
Oh, he is very much of the Reagan school and thinks that he has earned it.
Like I said, I lean libertarian, but flashy displays of wealth are IMO tacky. It's worse when you are flexing on CSRs that make $12/hr. Our CEO has made displays of how much money he has on the floor, and he seems to think it will motivate them.
Not my department, but I can understand why the customer service managers are pissed off by that. They have enough trouble with retention. It is somewhat disgusting to see a multimillionaire lord his wealth over people making barely over minimum wage. I know these folks, some of them are check-to-check. Answering emails is a horrible job, I wouldn't do it for $100/hr. That additional abuse is unwarranted.
> The story makes a good deal of sense if, in general, wages are set only partly by supply and demand, and partly by the employers-as-a-class's feelings of how much money people doing that sort of job ought to earn.
In my experience, this is exactly how business owners feel. The skyrocketing salaries of tech workers in recent years is a prime example. It isn't just supply and demand. Its also norm-breaking behavior by a handful of exceptionally profitable employers.
The people who claim that pay is based solely on supply and demand don't have a fully-developed conception of pay dynamics, historically or otherwise. Who you are - or rather, who is likely to be doing your job - absolutely helps determine pay rates. I have no doubt that the consternation regarding that "$70k for all employees" company extends to decision-makers, nor do I have trouble believing that the race/gender income gaps are not solely about job choice or negotiation skills or any of that. Whether its systemic or personal, there is definitely a decision being made as to how much this or that person "is worth."
Sooner or later, it comes down to total employee costs vs what value the employee contributes becomes the opportunity cost of money, usually around 15%.
You're assuming there are no rackets, either explicit ones or implicit ones.
Women's wages, for example, are very easily suppressed by a cultural racket that tells us the kinds of jobs they do (teacher, nurse, etc) are not very valuable.
Whether that's true doesn't really matter because as long as people believe it, there is money to be made acting as if it's true.
There's no real money to be made in breaking the racket, because by breaking it you'd just be paying more for the same thing your competitors are paying less for.
The moneymaking scenario is if you can make more money with fewer people by paying top dollar for the best people in an otherwise underpaid class.
But that will typically just result in a bifurcation of the market, with some higher paid positions, and many lower paid positions, not a global rise in salaries. Then the best gamespeople will be drawn to those higher paying gigs, and they will push out the most talented professionals from those positions, erasing the desired productivity gain, and eventually causing the salaries to revert back to the mean.
You really need a very strong leader to break the racket, someone who can create an organization that really cultivates good people maintaining control of their work. And a very good business model that would allow you to grow fast to displace your competitors. That kind of company is extremely unusual. It's just not something the market automatically creates. There are much easier kinds of companies to create that still make money, so that's where the bulk of investment goes.
People underestimate the amount of available high quality business leadership. Without infinite available leadership, the market can only optimize the low hanging fruit. More tricky local maxima just won't optimize out.
> People underestimate the amount of available high quality business leadership. Without infinite available leadership, the market can only optimize the low hanging fruit. More tricky local maxima just won't optimize out.
Poorly run businesses is why there is always opportunity for someone else to do better, and why there is a constant turnover of businesses.
> There's no real money to be made in breaking the racket, because by breaking it you'd just be paying more for the same thing your competitors are paying less for.
Your scenario means that hiring nurses is a high margin business. High margin means businessmen will be attracted to get into those businesses. (After all, businessmen are in it to make money, not pursue a social agenda.) Lots of businessmen moving in will inevitably erode away those high margins.
This is what always happens in a free market. Greed trumps racism, sexism, etc., every time. If it isn't happening, look for a legal/regulatory framework that prevents it. For example, the original impetus for medical doctor licensing was to drive black and jewish doctors out of business, because the free market had failed to do so.
See "Competition and Monopoly in Health Care" by Frech.
Non market mechanisms dominate the world, and they aren't just government regulation.
People go into teaching and nursing out of altruism, not because it pays well. People preserve historic collections because they love them.
Nepotism is rife in many organisations, connections and 'who you know' is hugely important, half of Russia's GDP is in corruption, and so are most countries in the world.
In most markets consumers don't actually understand the product they are buying, whether that's technology or consultancy, and cannot competently compare two products and tell which one is better.
Efficient market is a dream, and you should not be dogmatic about it.
> People go into teaching and nursing out of altruism,
I heard many claims of that, but haven't seen any evidence. I've often heard people say they teach/nurse in order to pay the bills.
> People preserve historic collections because they love them.
True, but such collections are not remotely dominant in an economy. Often they exist only because the government pays for them, which is not free market.
> Nepotism is rife in many organisations
If that means an incompetent is running the show, that fits under "poorly run businesses" I mentioned.
> half of Russia's GDP is in corruption, and so are most countries in the world
Corruption is not free market.
> In most markets consumers don't actually understand the product they are buying, whether that's technology or consultancy, and cannot competently compare two products and tell which one is better.
They don't have to. They use advisers who do, there's a thriving industry of people doing reviews, and lastly imperfect information is called "risk" and is priced in to most everything. For example, a used car bought from a dealer will fetch a higher price than one bought through Craigslist, because the latter is riskier. There's nothing not-free-market about risk pricing.
> Women's wages, for example, are very easily suppressed by a cultural racket that tells us the kinds of jobs they do (teacher, nurse, etc) are not very valuable.
Aren't nurses making six figures (or close) in the US?
Re: teachers - currently in many countries teaching is organized as a slacker's paradise - everybody makes the same amount of money (barring seniority etc.), there is very little accountability for results of the work, teachers are guaranteed job for life etc. This, at least in my country (Poland), more or less attracts people who are slackers or burnt-out in other jobs. As teachers, they do shit job and get paid ok amounts of money, which is a fair deal for them (as otherwise many of them would leave). Meanwhile, everyone who cares about their child actually learning something (i.e. parents who want to send child to good university with entrance tests) purchases private tutoring - this is where the real learning happens.
If rackets work so well, why aren't they used everywhere to suppress wages? Why do people get paid more than some minimum at all? Especially, why doesn't the racket suppress women's wages even more?
I imagine that many implicit rackets are irrational, and many explicit ones are ultimately later deemed to be morally-objectionable. So in the case of the former, no one wants to disturb a stable component of profitability, even as there is a sense that the paradigm is suboptimal, archaic, or however else a schema may become irrational. The latter is the answer to your last two questions.
Though I don't think it's strong enough in the long run.
See eg https://www.economist.com/business/2010/10/21/profiting-from... (going via Google Search or so might be required to get around the paywall). But the subtitle already gives the gist: "If South Korean firms won’t make use of female talent, foreigners will" South Korean companies are pretty sexist and pay women less and given them fewer opportunities. But foreign multinationals don't share that sentiment, and are happy to hire talented women.
(The article is a few years old. These days the foreign multinational companies might even be extra happy, because it helps them boost their global diversity stats.)
Rackets are used everywhere to suppress wages. Employers usually subscribe to services that tell them what other employers are paying in their area for a given job, which they use during salary negotiations to give themselves a stronger bargaining position.
Any difference in information between two parties is exploitable to drive the price in the direction favored by the more-well-informed party.
> Employers usually subscribe to services that tell them what other employers are paying in their area for a given job, which they use during salary negotiations to give themselves a stronger bargaining position.
That's not exactly a 'racket'. Glassdoor lists that kind of information for everyone, including job seekers. And workers' rights to share that kind of information is even enshrined in lots of countries laws as inalienable (ie they can't sign away such that right; any provisions to such effect are at best unenforceable and at worst make the employer liable to be sued).
> Any difference in information between two parties is exploitable to drive the price in the direction favored by the more-well-informed party.
Not in a liquid market with competition. Eg I have no clue what Google stock should be trading at, but if I send a market order to buy a few stocks, I'll get a pretty good price because there are several market makers competing.
There are sometimes attempts by employers at cartels. These days mostly informal or even only implicit, eg via the kind of third party information sharing you allude to you in comment.
But as with any cartel, each member has an incentive to free ride and non-members even more so. And while your local Burger King and McDonalds franchisees might be able to collude, they'll have a hard time keeping people from switching to driving to Uber or Lyft if fast food wages drop too low. There's also the safety valve of self-employment.
The best thing government can do for the workers is to lower barriers to entry for would-be entrepreneurs: make employers compete with each other, and also pre-emptively compete with potential new market entrants (imagined or real).
(Closing markets by eg taxi medallions is exactly the opposite of what's good for workers.)
why 15%? It seems to me that it would trend towards 100%, maybe a bit less to account for risk averseness. Not saying you're wrong, but it is counterintuitive.
Because that's what you can get by passively investing in other businesses and letting them do the work. For example, if hiring Bob generates a 10% ROI (Return On Investment) it makes no financial sense to hire him. If Bob generates a 20% ROI, it makes sense to hire him.
The ROI calculation is why many businesses (like Apple) build up massive cash "hoards" (they aren't really hoards, as the money is invested). They can't find a better investment within the company.
This suggests a wide availability of alternative, reasonable-risk passive investments with 15% yield, which seems unusually high. What is this investment, usually? Stock buybacks?
Stocks, bonds, etc. Larger corporations often have a department tasked with managing such investments.
If you were considering starting a business, would you consider a business with a projected ROI of 15% and you had to work 24/7 on it, compared with 10% ROI investing in the S&P 500 passively?
I.e. don't look at what you'd make running the business. Look at what you'd make relative to passively investing the money instead. That's "opportunity cost".
Where are these so called skyrocketing salaries? If a handful of companies in the valley paying people decent salaries because they generate them billions, what's the problem? There are hordes of capable tech people in the world,yet companies decide to establish themselves in the vicinity of these high paying companies and then complain about how hard it is to hire people,because they are expensive...Go figure.
> In my experience, this is exactly how business owners feel.
Anyone who consumes a good or service is aware of its market price, and is very well capable of comparing it to any value offered. There is no need to pull a classist conspiracy card because, in the very least, those responsible for doing the hiring have interviewed multiple candidates and heard what wages they were asking, and were more than able to compare offers.
It isn't so simple, because there are many ways of dividing up the work that's going to be done into job roles (and the division tends to be industry-wide, rather than done separately within each company).
The people doing the hiring may have enough information to produce an efficient market for a given job role, but I don't think the mechanism for the selection of job roles looks much like a supply-and-demand market.
Consider system administration. As a simplified example, you could have one equilibrium in which you have one low-skill employee for each 50 computers, or a different equilibrium where you have one high-skill employee for each 500 computers.
If the industry as a whole settled on the first, a particular company would find it hard to switch to the second: it would be hard to even gather information about how well it would work, because the operating systems available would be designed for the lower levels of automation that the first model implies.
In cases where two equilibria are viable, I think where we end up can depend on whether the employers feel that a given sort of job "ought" to be a high-paid professional one or not.
If you were to buy an inexpensive product to fulfill a certain need in your life, and that product failed before the need was fulfilled, you would not buy the identical product. You would spring for a more expensive product that would complete the need. You would demand a better product and the manufacturer would command a higher price. That is how the market works. If your workers were walking off the job to goto a job that was less tedious at the same pay, after you spent money on training them, the solution is to raise their pay high enough that they would stay and complete the task of building a cheaper automobile. You would demand a better quality of employee and they would in turn command more pay.
Even modern employers usually require some "character requirements". When was the last time you worked for a company that would knowingly hire an employee who had a record? A drunk and disorderly conviction can keep you from landing a job. In my state flipping someone off in traffic is considered harassment, which a conviction would then bar you from some employment.
In his book Shop Class as Soulcraft Matthew Crawford makes the point that Ford's employees found the work alienating. Many had been crafts people with a great deal of autonomy and they naturally found the production line unbearable. It took a lot of effort to change peoples attitude to factory work.
Did it ever change? I know that around here, when the weather is nice, after a shift a lot of the workers go straight onto the meadow behind the factory and drink heavily there. I don't suppose they drink because they're happy...
It’s not clear to me why you think this isn’t supply and demand at work. Ford had a particular demand for labor, and the market had a particular supply of it. What you’ve described is Ford defining what he thought his business requirements were, making differentiation judgements about what kind of labor he wanted to hire, and coming to a conclusion about how much he was prepared to pay for it. The only factors I can see that would introduce inefficiencies to discovering an equilibrium price in this situation are that Ford was doing something brand new, so he perhaps didn’t know exactly what he had demand for, and he was doing it in the middle of the second industrial revolution, so the market conditions would have been changing perhaps more than usual.
Ford never said he intended to make money by only selling cars to his employees! Only that the employees should also be able to afford the cars they were producing.
> The business about "character requirements" and visiting the employees' homes also looks like a conscious attempt to control where the workers fit in the class system.
I won't say that wasn't part of it. But I see a stronger connection to risk management. Reducing turnover means making sure you hire people who won't suddenly be arrested, hospitalized, or forget because they're too drunk. And the language requirement makes sure everyone in the factory can communicate with everyone else. The rules for women are likely just sexism though.
Workers fluent in English and who didn't gamble or drink were much lower risk (in terms of theft and punctuality) and higher value to ANY employer. Ford wanted to verify that his higher wages were being spent wisely on a higher quality workforce . .
I don't disagree with the article, but the false equivalency at the beginning is pretty annoying.
>It should be obvious that this story doesn't work: Boeing would most certainly be in trouble if they had to pay their workers sufficient to afford a new jetliner.
You could go the other extreme and ask the same question about paperclips, but paperclips are a poor substitute for automobiles. The equivalent of a jetliner in Ford's day would probably be closer to the Titanic than a Model T.
No, that's the point[1]: it's dubious to think that the worker's wages should bear any relationship to the finished product.[2] That's all the author is establishing there.
Yes, paying workers just enough so they can afford a paperclip is obviously a bad idea.
Yes, paying workers just enough so they can afford a 747 is obviously a bad idea.
Yes, it's still a bad idea when an efficient wage would be just enough for them to afford the same product (here, a Model T) you're producing. Even if that is a good idea here, the standard -- pay workers enough to buy the output -- is a bad one, because the output could be anything from a cheap consumer good to a megaproject.
[2] even under general mechanisms by which "price tends to cost" and intelligent uses of the labor theory of value, a worker might be contributing a valuable input (engineering design), or a not-so-valuable input (cleaning services for the offices).
But it is in Boeing's interest to pay workers enough to increase demand for jetliners -- that is, enough that they can afford airline tickets with some frequency.
It just doesn't make sense to pay your employees more in hopes that they will spend more and you'll get the revenue back.
Even if you could capture 100% of their extra pay (an absurd assumption, realistically 2% is huge) you are better off just keeping that money yourself since you'll have to provide them with whatever product/service you sell, which costs money.
Not necessarily! If Boeing decides to pay an employee an extra $50/month, and that employee saves all of that money and spends it on airline tickets, after the money that goes to the airline, the airline workers, the oil companies, and the airports, a small fraction of it returns to Boeing. Whereas if they didn’t pay them that extra $50/month, they would retain 100% of it.
If you pay an extra $50 a month, it forces all the other companies to pay an extra $50 a month, and you get a fraction of everyone's extra $50. If you get 5% of the average $50 a month extra, but only employ 1% of the workers, you make money
If you only employ 1% of the workers and you pay an extra $50/mo, the rest of the market isn’t necessarily going to keep up with you. You’re probably just gonna end up hiring the top 1%. (Which also had a lot to do with Ford’s success, to be fair!)
Analogous reasoning suggests that, if you have a 401k and thus probably own some shares in, say, Starbucks, then it's in your interest to spend as much as possible at their shops.
I think Worstall is correct that the story only makes sense if the pay decision can be generalised to other companies, otherwise it won't have enough effect on the market.
But there's no good reason to generalise "Ford workers should be able to afford cars" to "company X workers should be able to afford company X products".
Rather it should turn into something like "Factory workers should be able to afford cars".
I don't think people responsible for making those decisions are always adept at calculating what those costs are, and they aren't always empowered to make the fiscally sound choice.
part of an account I heard of this somewhere else was that the turnover of employees was specifically between car manufacturers. Because they all paid more or less the same, if a worker got annoyed he would leave with no notice and go to a competitor.
Ford also refused to re-hire anyone who had previously quit, so the $5 was a great example of "Golden handcuffs". People would think twice before leaving, knowing they would be making 50% for the foreseeable future if they did.
Today, I don't think the general public buys that story cover. Probably back in Ford's time.
Ford had to raise wages because it was actually cheaper than to not to. If we want to look at a good analog today, I would point to software engineers.
>It should be obvious that this story doesn't work: Boeing would most certainly be in trouble if they had to pay their workers sufficient to afford a new jetliner.
This is a terrible strawman. One could easily argue that Boeing should pay their employees enough so they could afford plane tickets to fly in Boeing jets. Comparing a commodity product to a commercial product like this article does is narrow and silly.
The point is that the amount of money that your workers are making, does not have any significant effect on the demand side of who buys your product.
If your workers make up ~1% of your customers, then them making more money to buy you product, could only really make you around 1% more money.
The argument is just completely nonsensical, that you could spend 100$ increasing a worker's wages, and that is somehow going to get you that 100$ back, because they buy your product.
Instead, you are only going to making back, like 1$ (Because they are less than 1% of your customers). It is an obviously false argument, that becomes apparently if you even do any back of the envelope math at all.
And this is without even taking into account things like revenue vs profit. IE, even if the workers give you back all the money, the materials of the car make up a significant percentage. So, if you pay someone 100$, they give it back to you, you now have to spend 60$ on materials, and you now only have 40$ left.... so you are down 60$.
"The point is that the amount of money that your workers are making, does not have any significant effect on the demand side of who buys your product."
This is a class issue. I imagine Henry knew that. Workers must be paid well. All workers. Or the ruling class (Henry's class) will wither and die.
This is a point the current ruling class has forgotten
No. He had to pay more than other employers to retain employees. Once all workers are paid well, he has to pay better than them. It has nothing to do with any desire to protect his own class.
The line about wanting his employees to buy cars is obvious propaganda, but hard to argue with lacking the truth it was meant to distract us from. The truth was not obvious, but required more facts, which the author supplied. So, now we are equipped to put Ford's line to bed: he had no particular desire for his workers to live well, but did need them to stay on the line.
To be clear, this is not Forbes. This is forbes.com/sites/ which is an unedited blogging network. So long as a blog brings in clicks and doesn't cause problems for Forbes then they don't much care what is posted.
If it's at forbes.com, and has Forbes logo at the top, it's Forbes. If they don't like the brand damage this is creating, tough luck: they can't have their cake and eat it too.
Forbes died the moment Forbes himself died. This was in 1954. Forbes, the magazine, has been going down hill since then, and most of us have only been alive for around half that time.
Another facet not mentioned is unemployment. The world of pretty casual factory work (52k hires/year with 14k employees) was one in which (say) a 20% decline in work meant the average guy waited an extra 2.8 weeks before starting the next job, which he did a few times each year. It's pretty easy to save/borrow enough for a few weeks.
But in Ford's new world of more-or-less employment for life, a 20% decline meant 20% got fired, and those guys now waited on the bench until the economy recovered. This is, I think, part of why the great depression was so unpleasant, compared to 19th century recessions. (For clarity, I don't think this was anybody's intention, just a consequence of higher-skill jobs being less flexible. Nor that it was the entire story.)
Beware of getting history lessons from fellows at the Adam Smith Institute. As is almost always the case with history, the truth is a bit more nuanced and needs more than one conservative's blog for a full treatment.
The policy did come directly from Henry Ford [1], and in 1926, Ford himself wrote:
> "The owner, the employees, and the buying public are all one and the same, and unless an industry can so manage itself as to keep wages high and prices low it destroys itself, for otherwise it limits the number of its customers. One’s own employees ought to be one’s own best customers." [ibid]
Although employee turnover may have been a factor, the source material for Tim Worstall's quoted excerpt in 2012 continued,
> "The $5-a-day rate was about half pay and half bonus. The bonus came with character requirements and was enforced by the Socialization Organization. This was a committee that would visit the employees' homes to ensure that they were doing things the "American way." They were supposed to avoid social ills such as gambling and drinking. They were to learn English, and many (primarily the recent immigrants) had to attend classes to become "Americanized." Women were not eligible for the bonus unless they were single and supporting the family. Also, men were not eligible if their wives worked outside the home. Other groups also offered classes to help immigrants and southern blacks adapt to the Detroit area, but none were so prominent as the Ford plan." [2]
And this is where so much more of the nuance really comes in to play, because Ford was a complex character. Among his complexities was a really paternalistic view of his workers and of society; he believed in an idealized, perfect society, and sought to create it and to force others to live in it. [3]
The $5-a-day plan solved a handful of problems then. It gave Ford a lot of free advertising in the press, it added a significant amount of pressure to his competitors, it ultimately made his automobile a little bit cheaper, and it supported his paternalism for his workers.
You could do worse for a modern analogue for Henry Ford than Elon Musk. He's a really divisive figure in a lot of discussions, alternately driven by impassioned visions of a hypothetical society and by larger-than-normal faults. He makes decisions that are part business and part ideology, and so did Ford.
I enjoyed your comment, but it is an unfair criticism of the article. The subject of the article is not Henry Ford, the subject is his $5 a day wages. It's a business article (vaguely economic) not a historical account.
> The point is not so as to be paying a "decent wage" or anything of that sort: it is to be paying a higher wage than other employers.
There are a couple of key take things to take away from that.
* The employer is less pressured to find candidates. Candidates will find the employer if it means double wages.
* The employer has more choices. They aren't locked into settling for somebody vaguely competent from a limited pool of applicants.
* Employees are locked in knowing they cannot go somewhere else for equivalent money.
Despite those points there are limitations to this approach. For example, I have known many low income people who would not join the military even though it could mean double or more in wages. Likewise I have also known many people who refuse to get into software knowing they could double their wages. I would also be willing to accept lower wages elsewhere if the work were engaging and meaningful (however a person defines meaningful).
The only way that super high wages make sense numerically is if it results in retaining employees for a longer enough period to reduce expenses of employee replacement over a satisfactory time period and results in a premium on choice of employee from the population at large.
Wages alone won't provide a combination of those though. There has to be something in addition that makes the employer stand out in world class fashion. That could be unique opportunities, superior training, an accreditation program, research recognition, or something else. If this is missing the organization is going to swell with a certain percentage of bad candidates that will decay the organization over time from the inside out.
Government agencies emphasize the later more than the former because they have budget limitations on what they are allowed to pay employees and because the later has proven more historically reliable at retainment.
> * The only way that super high wages make sense numerically is if it results in retaining employees for a longer enough period to reduce expenses of employee replacement over a satisfactory time period and results in a premium on choice of employee from the population at large.*
This ignores the large increase in productivity from each individual employee. Better-paid employees are less stressed, healthier, less busy at home (because they can afford domestic help), and spend less time commuting.
All of those things provide ROI for higher wages irrespective of turnover.
> Better-paid employees are less stressed, healthier, less busy at home (because they can afford domestic help)
Again, that isn’t always true. It is true when comparing $40k to $100k but less true when comparing $200k to $400k. When looking at that argument in terms of scale it is an argument of diminishing value that does not guarantee the increased individual productivity the argument would promise. The reason why that argument can suggest but not promise increased individual productivity is that increased wages alone does not directly correlate to better leadership or a more valuable team.
This may be true, if the employees are receiving high salaries under normal working conditions. But sometimes, the high pay is a result of insane work conditions. For example investment bankers, lawyers in biglaw all work crazy hours and are under an immense stress from juggling multiple projects at the same time. You sacrifice your health, family, friends for earning a high salary. The turnover at those jobs are super high and the job requires a certain amount of breaking-in.
In my experience (as someone working in Biglaw), high pay equals high stress, because the employers demand it.
The moral of the story is you're supposed to be generous to your employees by reflex without having to wait for excess labor difficulties or costs to become quantifiable.
Pinpointed savings will always be limited and never correlate very well with the unlimited advantage of a more motivated staff after all.
I'm not a communist in that I feel we should reward effort, experience and commitment but that said I also think grunt work and bean counting are equally important to get a product out there. There is nothing logical about squeezing the grunt work as much as possible for the benefit of the bean counter. Its just theft.
I one time oversimplified the situation like this: We could examine each sector for innovation. If there is not enough or a sufficient lack of it government can run the operation. The idea needs a bit of fine tuning to house the remnants of innovation in competitive commercial hands.
And let's not forget the bromance between Ford and Hitler.
“only a single great man, Ford, [who], to [the Jews’] fury, still maintains full independence…[from] the controlling masters of the producers in a nation of one hundred and twenty millions” - Mein Kampf by Adolf Hitler
Also one of the many antisemitic conspiracy theories Ford espoused:
Jews have always controlled the business... The motion picture influence of the United States and Canada...is exclusively under the control, moral and financial, of the Jewish manipulators of the public mind. - Henry Ford
> Seriously, please read about how creepy Ford was, this article does not do it justice.
What surprised me the most is that Ford's decision to increase wages was actually to use Ford's dominance to pull an anti-competitive play on his rivals to try to dry them of talent and manpower, which back in the days actually was deeply tied to the throughput and quality of the product that comes out of their production lines.
Thus by paying a little extra to their workers, you in practice are killing off your competition by strangling their ability to produce competing products.
It surprised me that the author showed ignorance in a way that forced him to use some imagination to come up with absurd argumrnts when he did not needed to.
It sounds like you are saying that these workers were worth a lot of money, as they determined the quality of the cars.
So... that means that they were actually worth those higher wages.
Anti-competitive would instead be if a company did something that was unprofitable in the short term.
This wasn't unprofitable in the short term! It makes perfect business sense to pay lots of money to highly skilled workers that are legitimately worth that money!
My guess is that it requires deeper pockets but it is an utterly fucked thing to call actually competing for employeers anticompetitive. Granted the accusation "anticompetive" is often a tall poppy complaint that really means "I don't want to have to compete with that!"
IRC these wide variations are all due to relatively greater fluctuations in the value of the dollar compared to relatively lesser fluctuations in the functional value of gold.
With uneven but too-frequent devaluation events, the US dollar, or indices based on it, certainly does not have enough continuity to make accurate trending across the previous century feasible.
These events are usually reserved for situations when other assets are in extreme flux, exacerbating the difficulty accommodating the discontinuity.
Becaue gold (and silver) is the Constitutionally mandated legal tender the US dollar is supposed to be based on, and it was still true when the Model T got started.
That's the exact form of compensation, whether wages or bonus, that American wage earners had simply been working for up until that time.
There was extreme ambition for gold in particular continuously since before ancient Roman times, and few substitutes had yet been well accepted.
The degree of undue trust in politicians as beneficial economic influencers was not as strangling.
Some American workers actually often earned decent amounts of gold while others worldwide usually earned much less or none for similar effort.
> Becaue gold (and silver) is the Constitutionally mandated legal tender the US dollar is supposed to be based on.
No, it's not, and neither is anything else. The Constitution doesn't mandate any particular basis for federal legal tender; it does restrict what states can make legal tender, but gives Congress unrestricted power to coin money of any kind and set it's value (and the value of foreign money of any kind.)
You are correct, I was mistaken, it was a 1792 Act of Congress.
Not Constitutional, but going back before 1792, precious metal is still the only true currency the USA as young Ford knew it had been built upon since the beginning.
With gold and dollar still locked together having equal and excellent stability over longer terms, it was still possible to more meaningfully extrapolate relative wealth and value for labor in terms of gold & silver, and back much further in time than a single century, in some ways back millennia.
After the Fed, removal of gold coins & certificates, eventual confiscation of gold, then abandonment of the dollar's link altogether in the most recent century, not so much.
But the further you go back the less realistic units other than gold still turn out to be.
Anyway, with Ford putting out USD5 per day, the rare worker who could go 100 days without other obligations could then afford a nice Model T Ford family car for cash taking home their gross pay, which is what you needed since financing was not so common.
Seems like Ford probably is putting out close to USD300 per day now, the present worker just takes home a much smaller percentage and needs to settle for relatively less expensive cars than the _nice_ full-sized ones.
Repeated use of a straw man argument.
I knew that retention was a reason for higher pay. But social inclusion was too, that is the surplus of money and ability to join in consumer culture. (I doubt Henry used terms like that!)
"It was nothing at all to do with creating a workforce that could afford to buy the products" is simply a lie. That was part of the reason.
In this case production line workers were a relatively new thing, and Ford was helping to create a consensus about where they would fit in.
Part of the reason why simple supply and demand doesn't dictate a single level of wages is that there's a good deal of flexibility in what doing a job entails.
In this case it seems Ford was helping to decide that the workers would be skilled labourers: there'd be a training cost (what the article calls "a costly break-in period") and high enough wages to reduce turnover so as to amortise that cost.
The business about "character requirements" and visiting the employees' homes also looks like a conscious attempt to control where the workers fit in the class system.
The alternative would presumably have been to try to organise the production line to require less training, and accept the efficiency loss in exchange for the lower wage bill.