HENRY FORD AND THE VERY GENEROUS $S-A-DAY WAGE
Henry Ford was an industrial visionary. As founder of the Ford Motor Company, he was responsible for introducing modem techniques of production. Rather than building cars with small teams of skilled craftsmen, Ford built cars on assembly lines in which unskilled workers were taught to perform the same simple tasks over and over again. The output of this assembly process was the Model T Ford, one of the most famous early automobiles. In 1914, Ford introduced another innovation: the $5 work a Tills might not seem like much today, but back then $5 was about twice the going wage. It was also far above the wage that balanced supply and demand. When the new $5-a-day wage was announced, long lines of job seekers formed outside the Ford factories. The number of workers willing to work at this wage far exceeded the number of workers Ford needed. Ford’s high-wage policy had many of the effects predicted by efficiency-wage theory. Turnover absenteeism fell, and productivity rose. Workers were so much more efficient that Ford’s production cost.’ were lower even though wages were higher. Thus, paying a wage above the equilibrium was profitable for the firm. Henry Ford himself called the $5-a-day wage “one of the finest cost-cutting moves we ever made Historical accounts of this episode are also consistent with efficiency-wage theory An historian of the early Ford Motor Company wrote, “Ford and his associates freely declared on many occasions that the high-wage policy turned out to be good business. By this they meant that it had improved the discipline of the workers, given them a more loyal interest in the institution, and raised their personal efficiency Why did it take Henry Ford to introduce this efficiency wage? Why were other firms not already taking advantage of this seemingly profitable business strategy? According to some analysts, Ford’s decision wa
closely linked to his use of the assembly line. Workers organized in an assembly line are highly interdependent. If one worker is absent or works slowly, other workers are less able to complete their tasks. Thus; while assembly lines made production more efficient, they also raised the importance of low worker turnover, high worker effort, and high worker quality. As a result, paying efficiency wages may have been a ‘better strategy for the Ford Motor Company than for other businesses at the time..