When Henry Ford Doubled His Minimum Wage (2014)
saturdayeveningpost.com
saturdayeveningpost.com
For one thing, Ford's logic is quite sound precisely because he's the only one raising wages. If his aim is to remain competitive and retain workers, that only works if he's the only one doing it -- competition, by definition, is relative.
Furthermore, the idea that people become richer because the number on the bottom of their check goes up, rather than the buying power of that number, is easily debunked by looking at the entire history of inflation. I'm easily making more money, in nominal dollars, than an average CEO in 1919, but I'm not running wild in Saint-Tropez every summer either.
The one thing the article does get right is Ford's attempt to fight the stock market crash in 1929 by raising wages further backfiring. The reason is because his higher wages were not the actual reason why Detroit was richer -- the opposite was true: he was able to pay higher wages because Detroit was richer; or, more precisely, because he made the best cars in the world and capital flowed into his company and his city at high rates. But when the economy contracted, Detroit was going to feel the pinch, also.
Nothing in this article makes a case for raising a federally mandated minimum wage, and actually undermines the argument quite a bit.
Not arguing with your general point. But on this count, I think you're vastly better off than the average CEO in 1919. You have luxury they couldn't have even imagined.
- quality of medical care - entertainment - air travel - cars - food regardless of season - etc
Depends. Does it buy more concrete? Does it buy more rocket ships? Does it buy more childcare? Does it buy more iPhones?
Just depends on what you're talking about.
I'm pretty sure this is not specific for the modern age, but perhaps the shift from undernourishment to malnourishment is.
That isn't going to be what happened. He would have thought about it carefully and moved deliberately because he thought it would benefit his business.
I'll draw an analogue with, say, Google and their 20% time back in the day. It might be quirky and costly to the company (losing 20% of your workers productivity!!) - but it isn't happening because the bosses are just lovely people. It happens because the boss thinks that there might be a payoff. It is circumstance-specific whether such bold plays work out.
I'll reiterate what some others are saying; capitalism is all about allowing selfish motivations to power great outcomes. The moral people tend to be the wizened monks sitting on mountains rather than the egos that power the machinery of society. Something external to the Ford company would have driven the rise in wages, and that something was likely to be competition or economic opportunity.
Consider that 5 dollars for an 8 hour day in 1914 dollars works out to almost 16 dollars an hour in 2019 dollars.
Except that the rest of the industry followed suit as well, which, by your logic, should have nullified any advantage.
But it didn't.
There are other points to the article that naysayers completely miss (because it disagrees with their set-in-stone world view, it seems). Well paid workers, even if common across the entire industry, have multiple benefits. They are more motivated, more productive, and at a larger economic scale they have more buying power to actually purchase things being produced.
How long did it take for the rest of them to follow suit, and was it just the automotive industry, or the entire market that did so?
Ford basically started the trend that would create the middle class in the US at large (somewhat arguable, but commonly attributed to him and this decision).
Probably a typo, but in case it wasn’t : https://grammarist.com/usage/veracity-voracity/
This argument makes no sense. Raising the minimum wage doesn't affect everyone equally like inflation does. It affects only those with the lowest income, with maybe a trickle-up effect to those making somewhat more.
Our minimum wage being so low puts great strain on our social services (and if they didn't exist, the situation would be even worse - it would just be a reversion to what we saw before and during the great depression). Noone should be fully employed and still require food stamps and public housing vouchers, but that's the reality of today.
Yes, this seems obvious.
> And you can't look at economics in a vacuum
Agreed, as long as we acknowledge that we shouldn't use this truism as an excuse to sweep away every argument about economics.
Overall, I don't see how you've contradicted my point, which was that when Ford increased bottom wages, it worked as long as other competitors for its labor market did not increase their bottom wage in kind. It seems like you're just making a case against low minimum wage in general.
If everyone getting minimum wage had their wage increased it would decrease the number of people who left the workforce entirely. The same effect would happen in for a case if all his competitors increased their wage too
It only works as a contradiction in this case if Ford employees quit and stopped working altogether. If they tended to seek employment elsewhere, which I believe to be the case, then that makes my point.
Factory work was repetitive and monotonous. The Ford workers preferred to take work elsewhere, until Ford doubled wages. Had those other companies doubled wages as well, then why would they come back to Ford?
> If everyone getting minimum wage had their wage increased it would decrease the number of people who left the workforce entirely. The same effect would happen in for a case if all his competitors increased their wage too
This doesn't make sense to me. If employers didn't have enough staff, they would increase bottom wages in order to fill those positions rather than forgo potential profit and business health. If there is unemployment and bottom wages are low, then that says something about the labor market, not minimum wage. It means there is low demand for staff. Increasing minimum wage doesn't magically increase the number of open positions in the labor market.
That is ignoring the point you actively quoted. Once wages decrease enough workers exit the workforce. There is no reason for them to continue working when the costs of living outstrip their wages. This is not even a hypothetical, you can look at modern families that decide to have a parent stay at home because daycare costs outstrip their salary to see this in effect today. You can imagine this happening of wages got so low that a person would be able to spend time growing their own food and getting more free time than if they worked and traded their paltry wages for food.
Having all competitors increased wages would have pulled more workers into the workforce from the pool of people who had decided that they got better value out of doing their own thing rather than working for a company, so everyone would win.
>This doesn't make sense to me. If employers didn't have enough staff, they would increase bottom wages in order to fill those positions rather than forgo potential profit and business health. If there is unemployment and bottom wages are low, then that says something about the labor market, not minimum wage
You are mixing two concepts here. You see correct that if unemployment is high and bittom wages are low then the market is not valuing that labor. The government is mandating a minimum wage would still bring more workers out of the "not looking for work" section of society into the workforce by increasing the benefit of working for those workers.
I feel as though you are suggesting that companies should only pay what workers are worth to them and the government should stay completely out of it. That is a logically consistent viewpoint if you are ok with people who don't currently have a valuable skill dieing in the streets from poverty. Our society,in most western European derived societies, has decided that this is not acceptable and has put in social safety nets to prevent this.
When an employer pays too little to live and the government has to step in to provide enough extra for the employees, that means every taxpayer, including you and me, are now subsidising that employer. If the government wasn't there then the workforce for the employer would either leave them or die off and the employer would naturally be forced to increase wages or go out of business.
As it stands I see three options for society, and only 2 ethical ones.
Option 1, the government taxes everyone enough to provide ubi and employers no longer have any limitation on them concerning minimum wage or other compensation. If they want to offer 1 penny per century and someone agrees, that's fine.
Option 2, minimum compensation is encoded into law and increased to the point where the government no longer has to provide any welfare
Option 3, which I personally find immoral but would be logically consistent, is that we go completely laissez faire so employers can offer what they want, the government doesn't tke taxes to provide welfare, and of a citizen doesn't have a valuable skill they either learn a valuable skill or die from lack of medicine or food
Think: how could an increase in minimum wage cause inflation? For that to happen – for all goods and services across the board to increase in value – the amount of money in circulation would have to increase, or the economy would have to shrink. But increasing the minimum wage does not cause money to enter circulation! So if an increase in minimum wage were to cause inflation, it would only be because the economy is simultaneously shrinking. (Which could possibly be caused by too great an increase in minimum wage, but that's a separate discussion. Is this what you are arguing?)
Don't you agree that if you arbitrarily increase wages for a significant segment of the population, that segment will now want more of the goods and services they could not previously afford? Increased demand will drive up prices for those goods and services unless supply increases at the same time. If prices do go up, those with more bargaining power will seek higher returns for their labor. The net effect will be that almost everyone will see their income rise to some extent, but the supply of goods and services they are chasing is going to remain essentially the same. So almost all of us will be paying more for the same stuff. The only way that won't happen is if supply could magically increase at no extra cost – but that can't happen because we've raised the wages of all the people that supply those goods and services.
I don't disagree that the effects you describe happen; my point is that, because of controls on monetary supply, they cannot happen equally to everyone. Nor can a minimum wage hike cause inflation on its own. (Of course, one could coordinate a change in monetary policy to effect inflation which negates the change in minimum wage in exactly the way you describe. The assumption is that the government is not so stupid as to enact two self-defeating polices.)
Of course, whether a minimum wage hike is an appropriate way to achieve the goal of reducing income and wealth inequality is debatable, but it does have a (non-transient) economic effect, because the value of money is anchored by other, more influential, aspects of monetary policy than the minimum wage (namely, the federal reserve rate).
Raising the minimum wage results in: - A raise in the price of products (hurting the poor the most) - Firing employees - Reducing hours - Going out of business - Outsourcing
I'm a business owner, and I'm not going to sit here eating up the cost of a higher minimum wage. The central planners don't seem to understand this -- or they do, and they ultimately want more people dependent on them. If that's the case, raising the minimum wage is a great idea.
[1] http://www.econtalk.org/jacob-vigdor-on-the-seattle-minimum-...
when you put it like this, it seems obvious to say that the right move is to screw over the teenagers who are much less likely to be supporting a family or themselves.
I'm not sure this is great in the long run though. imo, having some kind of part time job is very important in highschool. for a lot of teens, it might be the first time they are exposed to an environment that has no inherent reason to make things work for them. until we finally get luxury space communism, this is a really important experience to have early in life.
Which sucks if you're an adult making a living who happens to be young, but that's what we do.
There's also a dirty hack: We call some young people "apprentices"(1), which sometimes means the same job as before and not having to pay the minimum wage, with a veneer of marketing. See also "unpaid interns".
(1) I don't want to disparage proper apprenticeships, which from reports can be excellent, e.g. at engineering firms like Rolls-Royce.
by the way, we do have special rules in the US for what kind of work you are allowed to give to interns. in general you are not allowed to give work to interns that would otherwise be performed by a full employee. this is intended to prevent adult employees being put out of a job by low pay interns. unfortunately, I don't think most minimum wage employers are interested in dealing with these complicated rules for interns.
The restaurant part is particularly notable: “'We're going to be fine. Our members of this [Washington Restaurant] Association--the minimum wage, it's not going to break them.' And the reason why, he said, is because, 'there are so many strategies that we have to basically reduce our labor.'”
And then it goes on to basically list alternatives to having any entry-level jobs in the first place; buying cut fruits from offsite, self-order machines, etc.
That is, its a bit more dangerous than the simple job-hour reduction; its a more permanent transition to the total removal of low-level full-service work
No matter what the goal of raising it I think the fact that it's now a fraction of what it was in real dollars demands we either raise it or completely rethink how it's applied and what kinds of jobs can be min wage. People working full time should be able to live on their wages, anything else is just subsidizing the labor costs for huge profitable companies.
https://www.marketwatch.com/story/raising-fast-food-hourly-w...
There would be no need for a minimum wage if we had UBI but that kind of thing is too far off.
Both rent and house prices shot up. Those who owned houses profited massively from the unearned wealth increase. Those renting suffered.
We're now in a situation where everyone needs 2 full time high wage earners to pay for the same housing and lifestyle that used to be done by 1 full time high wage and perhaps 1 part time low wage
Not to mention, rent control is a good idea in addition, or finding ways to make homeownership more in-reach for more people.
This is my primary reason for supporting it.
Estimates are that labor costs are more like 33% of the costs of a fast food restaurant like McDonalds:
https://s3.amazonaws.com/s3.documentcloud.org/documents/2915...
Increasing pay by close to 50%,one would expect that prices would have to increase by closer to 15%, not 4%. Though, given how price sensitive those customers are, it isn't clear how much you can raise the price.
In terms of margin, it looks like McDonalds is doing much better than other chains:
>...In 2012, for example, when McDonald's had a net profit margin of just under 20 percent; Burger King's net margin was less than a third of that and another big chain; Wendy's, had a scary thin 0.3 percent.
https://smallbusiness.chron.com/average-profit-margin-restau...
But even at McDonalds, I think it is safe to assume that in the longer term, fast food restaurants would look into replacing rising labor costs with machines - that might be replacing cashiers with kiosks or even machines that prepare and cook the food, etc. This would be expected to happen anyway, over time, but mandating huge increases in labor costs will mean it happens quicker and be more disruptive. (One might say "good riddance" as these aren't great jobs, but they are entry level jobs which are disappearing in all industries.)
But a much larger change to profits. And it's the profits that matter to the business decision makers.
Yes you are.(1)
(1) "You" here means the collective cohort. You as an individual business owner might be principled enough to refuse to hire, but I believe the data from other places that have a low but non-zero minimum wage indicates your cohort will usually raise wages, rather than not hire. Bearing in mind minimum wages are still very low wages. If business is so tight that would catastrophically affect profits, you will usually raise prices, and the cost isn't so much eaten as the pressures in the business adjust around the new reality; this is made easier by the fact that your competitors are doing the same.
> or they do, and they ultimately want more people dependent on them.
At least in some countries, raising minimum wage makes people less dependent on the state, not more. Two reasons: People need less top up from the state to plug the gap between low wages and high costs of housing and health, and people are more motivated to take a job because it makes a material difference to their situation, indeed poverty-level wages (far below minimum) often cost more to earn than they provide.
the piece does not seem especially hungry to me
This sentiment and empathy seems to be lost in today's business / cultural climate.
He raised the wage, in large part, because he could not retain employees due to the work conditions.
Put another way, Ford understood that to get what he wanted he'd have to consider the fate and faith of his employees. Do you think that's how Bezos thinks?
Put another way, Ford understood that to get what he wanted he'd have to consider the fate and faith of his employees. Do you think that's how Bezos thinks?
I think what you're saying is - correct me if I'm wrong - Bezos does __not__ factor in his employees in the way Ford did.
p.s. The fact that we even have the term "human resources" tells us a lot, eh.
[citation needed]
Actual data tends to disagree: https://www.nber.org/papers/w4509
Government raising the minimum wage is:
* Bad for profits (the main effect is to redirect cash flows from profit to wages).
* Progressive for low income individuals (it raises the bar on low wages - raising wages just about the minimum). The inflationary impact is very muted compared to this.
* Positive for GDP growth - the multiplier effect of money going to low wage earners is much higher (>3x) than profits (<1x) because they have a higher proclivity to spend the money than profit recipients will.
I note that in a world of globalising trade this isn't true - there are vast untapped reserves of both employees and customers out there. It then becomes possible to cannibalise the existing market through unsustainable practices. Until the global market as a whole is lifted up to the same level.
taken literally this is an absurd claim. sure it makes sense if you're making the first mass produced car, but no matter how well my company treats me, I'm not going to buy their niche B2B software.
Dodge v. Ford Motor Company, 204 Mich. 459, 170 N.W. 668 (Mich. 1919)[1] is a case in which the Michigan Supreme Court held that Henry Ford had to operate the Ford Motor Company in the interests of its shareholders, rather than in a charitable manner for the benefit of his employees or customers. It is often cited as affirming the principle of "shareholder primacy" in corporate America. At the same time, the case affirmed the business judgment rule, leaving Ford an extremely wide latitude about how to run the company....
Ford, the company, along with GM gave up that system half a century later for a more rigid system that included more outsourcing but had the upside of being impermeable to strikes. Toyota on the other hand continued the flexible system along with the higher cost of labor and royally outsmarted the American companies in the 70s.
The role of organized labor shouldn't be ignored. And neither should the competitve advantage of working with well-skilled and well-contented labor.
Ford's rationale for increasing the wage for his workers, as laid out by him, was to make it so every Ford employee could buy a Ford car.
If you're curious, and want to know more about Ford Motor Company, I highly recommend a book called Wheels for the World by Douglas Brinkley. (https://www.amazon.com/gp/product/067003181X/) Ford opened its full archives to the author, and it covers their entire history, warts and all.
It was about seeing off an incipient threat. IWW were quite active at the time. Amazon's goal last year was similar when they raised wages even though they refused to recognize the union.
>Ford's rationale for increasing the wage for his workers as laid out by him, was to make it so every Ford employee could buy a Ford car.
Which was obviously bullshit. The effect employees buying cars could have had on the bottom line was far outstripped by the increased wage bill.
For the same reason why luddites were and still are depicted as crusaders against technology: it's a convenient narrative for some.
Love it. Workers are better off poor!