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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: J_F_Shepard who wrote (761000)	1/2/2014 9:09:26 PM
From: TimF	Read Replies (1) \| Respond to of 1574002

If that was his reasoning (and I doubt it was) it was faulty reasoning. ------------- On Henry Ford and his $5 a day Written by Tim Worstall It's a fairly common trope in US lefty land that Henry Ford and his $5 a day wages back in 1913 marked a huge change in labour relations. He was moved to raise wages so high (approximately double the prevailing wage) so as to help create a market for his own products. This is an interesting thought, certainly, but not one that stands much examination. That year his establishment of workers was some 14,000 head: his sales some 170,000 and that's just the year that he started ramping up production through the moving assembly line (reaching 500,000 in a couple of years and near a million within a decade). The spending power of his workforce was entirely marginal. No, the real value to Ford of his high wages was, as with the living wage we looked at yesterday, that he was paying higher wages than his competitors. Twice what his competitors were paying in fact. In 1913 he had a turnover of over 50,000 workers to keep that establishment of 14,000. Paying hugely higher wages than everyone else in the nascent manufacturing industry of the time meant that he lowered turnover, thus recruitment and training costs. We might also note that he wasn't in fact paying higher wages: he was offering a bonus, a highly conditional bonus: The $5 a day rate was about half pay and half bonus. The bonus came with character requirements and was enforced by the Socialization Organization. This was a committee that would visit the employees' homes to ensure that they were doing things the American way. They were supposed to avoid social ills such as gambling and drinking. They were to learn English, and many (primarily the recent immigrants) had to attend classes to become "Americanized." Women were not eligible for the bonus unless they were single and supporting the family. Also, men were not eligible if their wives worked outside the home. The stories we're told about matters historical often don't stand up to all that much detailed scrutiny which is why they are more properly referred to not as history but as legends: highly partisan legends. adamsmith.org Yeah its a pretty crazy idea. If you pay your employees more, that adds to your cost in direct terms (although it can lower costs associated with turnover like training costs, and possibly allow you to be more selective about who you hire, so its not always a negative for the company), its very unlikely you can make up those costs through the employees buying more of your product. Their marginal propensity to spend extra cash on your product is probably far less than 100%. I can imagine a scenario where it could work that employees buying more of your product, helped your company grow, if somehow the employees all really wanted your product, but almost none of them could afford it, then you give them a moderate raise, and now they can and do buy it so their marginal propensity to spend that extra cash on your product is far above 100%, but that is a very unrealistic scenario for the entire workforce, even if it could happen for a specific individual. Also as Worstall points out, even if every employee bought a Ford because of this raise (and none of them would buy it without one), that is only 14,000 additional customers (not annual sales, the annual sales addition would be less, few people buy a new car every year) out of total annual sales of 170,000 to 500,000. For Ford the raise apparently made some sense, but not "so the employees would be able to buy the product", but because he could reduce turnover, and so he could push his social agenda on the employees by paying them bonuses (amounting to about half their pay) for acting the way he wanted them to act. I'm no sure how much of the benefit in Ford's eyes came from each of those things. Message 27092445