Thursday, November 21, 2013

What if Walmart DID adopt the Henry Ford wage program?

Chris Kim A shared an article by Robert Reich that discussed Henry Ford's payment of his workers, and how Ford's ideas could be applied to Walmart. Here's part of what Reich said:

...what Walmart’s CEO doesn’t get is that a large portion of Walmart’s customers are lower-wage workers who are working at places like … Walmart. And Walmart, not incidentally, refuses to raise its median wage (including its army of part-timers) of $8.80 an hour.

After noting Walmart's dominance of retail and its resulting influence, Reich then offered the following proposal.

Walmart could learn a thing or two from Henry Ford, who almost exactly a century ago decided to pay his workers three times the typical factory wage at the time. The Wall Street Journal called Ford a traitor to his class but he proved to be a cunning businessman.

Ford’s decision helped boost factory wages across the board — enabling so many working people to buy Model Ts that Ford’s revenues soared far ahead of his increased payrolls, and he made a fortune.

While a raise in Walmart employee wages would result in some level of increased sales for Walmart, there are important differences between the Ford situation in the early 20th century and the Walmart situation in the early 21st.

First, there are differences between the products sold by both firms. Ford manufactured and sold a single product, a high technology item requiring a significant capital expense. Walmart sells items manufactured by others (although I'm not sure if Walmart contracts out the manufacture of its store brand goods), many of the items sold are not capital goods, and the items are available from other retailers. Back in the early 20th century you couldn't buy a new Ford Model T from the Dodges, but you can buy Charmin toilet paper from Walmart, or Target, or Kroger, or 7-Eleven, or a multitude of other retailers. What's to stop a Walmart employees from taking his or her larger paycheck and spending it at Costco?

But more importantly, the complete Ford package is very different from the complete Walmart package that supporters of Walmart employees envision. At the end of the day, Walmart employee supporters would like to see Walmart employees have a "living wage" - and also to be represented by a labor union. One of the reasons that Ford implemented his plan was to keep the unions out - and if Walmart ever were to increase its wages, that would be a primary goal of Walmart also.

But there's one other big issue with Henry Ford's plan - one that I've discussed before. Robert Reich doesn't do this, but many people commonly assume that Ford's plan gave employees $5 a day. Well, there was a catch to that.

The program attempted to solve attitudinal and behavioral problems by changing the worker's domestic environment. The company divided the employee's $5 daily income into half wages and half profits. Each worker received his regular wages but only got his profits when he met specific standards of efficiency and improved his home life....

The company recorded the amount of withheld "profits" on the worker's pay stub so that each payday the worker had a reminder of the money he was losing when his home life was found unsatisfactory by Ford's investigators. If the worker acquiesced to the demands of the Sociological Department (to stop drinking, for example) he could receive a percentage of the lost profits. Thus, the Ford worker traded pride and privacy for economic security and a job with high pay.

I don't think that part of the Henry Ford plan would be all that popular with Walmart employees and their supporters.

On the other hand, you see that part of the Henry Ford plan being implemented all the time at a variety of companies.
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