Tuesday, December 31, 2013

What we could learn from Henry Ford -- Dec. 31, 2013 column


As Congress begins the struggle over raising the federal minimum wage, we can gain some historical perspective from an event 100 years ago this week.

On Jan. 5, 1914, Henry Ford did something extraordinary, even for him.

The man who developed the Model T and the moving assembly line called a news conference in Detroit and stunned the world by announcing that workers in his factory would make $5 per day, more than doubling the average worker’s wages.

“Even the boy who sweeps up the floors will get that much,” the New York Times reporter marveled.
Every schoolchild knows that when Ford hiked wages, his employees were able to buy the cars they built, which had the salubrious business effect of increasing company sales.

The government didn’t order Ford to raise his wages, of course, but proponents of raising the federal minimum wage say doing so is a matter of fairness. Someone working full time should not live in poverty. A full-time minimum wage worker makes $15,000 a year. If she has a child, her income falls below the poverty level of $15,510 for a family of two in 2013.

Besides, and here’s where Ford’s example comes in handy, increasing the buying power of low-wage workers helps boost the economy. When people on the margin get more money, they spend it.

Thirteen states and several cities are wishing workers a Happy New Year by raising minimum wage rates in 2014. In all, 21 states will have higher hourly rates than the federal $7.25 an hour. Eleven other states and the District of Columbia are expected to follow in the coming year.

Democrats on Capitol Hill want to raise the rate to $10.10 in three steps over two years and index future increases to inflation. President Barack Obama supports the move.  

Even though polls show most Americans favor raising the wage floor, it’s a no-go in the House, where Republicans say doing so is a job-killer because employers won’t hire as many young, inexperienced workers if individual wages are higher. Economists disagree about this, but most say adverse effects of raising the wage rate are small.

In Ford’s case, there was another, more practical reason for raising workers’ pay. His primary objective was to reduce attrition, according to a corporate history. Worker turnover on the monotonous assembly lines was high. At the same time he raised pay, he cut the workday from nine hours to eight and said he’d share profit with men workers (but not boys or women unless they were supporting families. It was 1914, remember.)

Ford had innovative ways of treating employees. No one would be fired unless for “unfaithfulness or irremediable inefficiency.” If layoffs were necessary due to decreased demand, he would try to time them with the harvest season so that men wouldn’t “lie idle and dissipate their savings."

Ford’s treasurer,  James Couzens, said, “It is our belief that social justice begins at home...believing as we do, that a division of our earnings between capital and labor is unequal, we have sought a plan of relief suitable for our business.”

Newspapers hailed Ford’s generosity and humanity. Critics wondered if he was a socialist. The Wall Street Journal complained that he had brought “biblical or spiritual principles into a field where they do not belong.”

But Ford’s ploy worked as he intended. Thousands of job-seekers flocked to the Ford Motor Company employment office from the American South as well as Europe.  Turnover in the factory declined, and with an eight-hour day, Ford could run three shifts instead of two, increasing productivity. Ford Motor Company’s profits doubled from 1914 to 1916.

Today, the public is focusing on the plight of low-wage earners. Fast-food workers in at least a hundred cities have staged walkouts to call for pay of $15 an hour, and the right to form unions.

The coming struggle over raising the federal minimum wage may be mostly political theatrics in an election year, but it raises questions about work and its rewards.  It can’t be healthy to see every policy question as a game with winners and losers: If workers win, employers have to lose. Why?

As Ford showed 100 years ago, sometimes doing the right thing can make everyone a winner. The $5-a-day wage helped create the American middle class.

© 2013 Marsha Mercer. All rights reserved.

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