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Politics : Formerly About Advanced Micro Devices
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To: combjelly who wrote (325631)2/12/2007 8:08:41 PM
From: TimF  Read Replies (1) of 1576346
 
he realized that by paying relatively higher wages to his employees so they could afford to buy his cars, he had a larger market for his products, something that many modern CEOs don't understand

"Many modern CEOs don't understand it because it isn't true, at least not for them. Its very unlikely to really be true for Ford either (higher salaries increase his costs and thus the price of his vehicles). Its much less likely to be true for most CEOs who's employee's wages represent a much smaller portion of total wages than Ford's did. If you employing only a tiny fraction of your potential market, increasing your salaries is more likely to decrease your sales (because it increases your costs) then it is to increase your sales.

If the potential market for Fords was was mostly Ford employees, than it would be a relatively small market. If it wasn't mostly Ford employees, than he would only be increasing the buying power of a portion of the potential market, while increasing the costs of producing all Fords. Also a great part of that additional buying power would go in to other things than new Fords, so the claim doesn't even make a lot of sense for Ford, let alone for other companies. (Ford might have believed the claim but that hardly shows it to be true).

Which doesn't mean that Ford was stupid to increase wages. He might have had more stable employment and lower costs involved in training new employees, as well as higher productivity from a more skilled and experienced workforce. If you pay more than your competitors you can get the best employees, and you can keep them over time.
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