Friday, April 26, 2013

Henry Ford's $2.50 a day program

There is a consistent concern by some (not all) people that if manufacturing workers do not receive adequate wages, they will not be able to buy the products that they are manufacturing. And if there is no market for their products, then the business itself will have to shut down.

If you remember, or dimly remember, or mis-remember your history, you may recall that Henry Ford solved this issue a long time ago. When Ford introduced its five dollar per day wage - a very high wage at the time - this created the middle class that could afford Model T cars, and everything was wonderful except for that teeny tiny little Great Depression that happened fifteen years later.

I kind of suspected that Henry Ford didn't set out to create a middle class, and that he had other reasons for increasing the wages. Even the Ford Motor Company admits this:

...Henry's primary objective was to reduce worker attrition—labor turnover from monotonous assembly line work was high...

However, there were other reasons for introducing the high wage. Not only would this lessen employee attrition, but it would also lessen employee desire to join a labor union.

Oh, and there's one other detail. Ford didn't offer a flat wage of five dollars per day.

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.

Now that's an interesting little catch. How do you know if the employee has improved his (they were probably all male in those days) 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.

For many, this was an acceptable trade-off; in fact, more people wanted to work for Ford than there were jobs available.

However, Ford's experiment was a victim of bad timing. The war in Europe (which eventually involved the United States) resulted in inflation, and also contributed to the very labor turnover that Ford was attempting to avoid - 51 percent in 1918, according to After the war ended, inflation made a $5 daily wage look unattractive, so the wage was increased to $6. And the sociological element of the experiment disappeared:

The six-dollar day was introduced in January 1919 and was adopted as the basic wage rate a few years later. Managers increased the speed of the assembly lines and workers faced "the six-dollar speed-up." Ford's creditors demanded payment after the war and the company began a ruthless cost-cutting program. Ford Motor Company officials drastically reduced the size and power of the Sociological Department and then dismantled the outfit during the recession of 1920-1921.
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